What Is a Base Salary? (Plus Tips for Negotiating Your Pay)
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Many employers pay their employees with a base salary. This form of compensation is common in many industries and employers may combine it with other forms of compensation, such as tips and commission. Learning about this type of salary may help you when applying for professional positions and negotiating a compensation package. In this article, we discuss the definition of this type of salary, describe how it compares to other payment packages, give a formula for calculating it, list some benefits of having one and provide some tips for negotiating your own pay.
What is a base salary?
Base salary is the initial rate of compensation that you receive as an employee in exchange for your services. Employers express base pay in terms of an hourly rate, or a monthly or yearly salary. For example, a job posting that promises a base pay of $20 per hour means that the new hire may earn a salary of $20 per hour worked, or $160 for an 8-hour workday.
This type of salary doesn't include any extra lump-sum compensation, including overtime pay or bonuses and other types of benefits. For example, tips, sales commissions, stock options, health insurance, vacation time or use of company property are not part of this type of salary. However, each of these elements can be in your overall compensation package.
Comparing your salary
Depending on the skills required by your role, your level of education can significantly affect this type of salary. Someone who has a professional certificate or master's degree might make more than someone who has a high school diploma or undergraduate degree, for example. Having more experience in an industry or a particular role helps you gain knowledge and contacts in the field, and therefore a higher earning potential. Special skills, or skills that are in high demand, can lead to a higher-than-average salary for your age group.
In addition to your skills and qualifications, other factors can shape this type of salary. Specifically, some regions are more expensive to live in than others. Salaries are often higher in more expensive locations so that employees can cover the higher cost of living. Finally, some positions, such as teaching, may receive more compensation at certain times of the year.
Calculating your salary
To calculate this type of salary, you can multiply your pre-tax income for each pay period by the number of pay periods in a year. For example, if you receive a pre-tax payment of $2,000 per month, the formula to calculate your base annual salary is:
$2,000 x 12 = $24,000
If you receive a pre-tax payment of $1,000 twice a month, the formula to calculate your base annual salary is:
$1,000 x 24 = $24,000
Benefits of a base pay
Here are some benefits of having this type of salary:
When you receive this type of salary, you can count on receiving the same amount of money each pay period. This creates a regular flow of income and allows you to plan your spending. For example, if you have a salary of $36,000, you can rely on $3,000 of pre-tax income for each month. By comparison, freelancers and business owners, for example, rely on other fees and commissions to generate their income. These can be subject to uncertainty because they rely on demand or seasonal changes.
Salary and benefits
Many employers offer professionals a range of benefits, such as health insurance and a retirement savings plan. This type of salary is often used to calculate the amount that you pay in these plans. For example, an employer may pay 60% of your health insurance premiums if you make $50,000 per year.
When you receive this type of salary, employers often automatically deduct a certain percentage of your income to pay for your yearly income taxes. This allows you to predict the amount of money you may owe to the government at the end of the year and automatically set that amount aside. This can save you from sending a large sum of money to the government at the end of the year to pay for your taxes.
Tips for base salary negotiation
Negotiating your salary is an important part of any job search process. It's important to understand the different elements of an offer and how to ask an employer or potential employer for an increased compensation package.
When you receive a job offer, the employer may present you with a compensation package that includes a salary and potentially other benefits. You may choose to negotiate for a better compensation package if you believe that the offer is not in line with your skills, education, career level or other strengths. Here are several tips for negotiating this type of salary:
Carefully consider the offer before giving a firm response
Express your appreciation for the offer and inquire as to when the employer needs a firm response. You may say something like, “Thank you so much for this offer, I look forward to reviewing it. When do you need a response from me?”. Generally, it's reasonable and expected to take a day or two to review the terms of the offer.
Ask questions about the offer
During this time, you may develop questions about the offer. Even if the offer is better than expected, it's important to make sure it includes everything you require because your initial compensation package may shape your compensation over your term at the company and potentially throughout the rest of your career. For example, you may ask about the potential for salary increases after a certain period of time.
Be prepared with the precise terms you want to be changed about the offer
If you'd like to negotiate, provide a range that begins with the amount that you want. This salary may align with your research on salaries in your field for similar roles and what is reasonable compensation for your level of experience, location and skills. For example, if you hope to get an offer for a salary of $60,000, you might give a range of $60,000 to $65,000 in response to the offer.
If you find that a potential employer is unwilling to move on the terms of this type of salary, you may also negotiate other elements of the total compensation package. For example, you might ask for more vacation days, stock options or a higher range of performance-based bonuses.
Identify the benefits that are most important to you
While negotiating this type of salary, it's beneficial to consider the total compensation package as a whole. In some cases, certain benefits may be more important than the salary. For example, if an employer offers a substantial sign-on bonus or stock options, those might be more appealing to you than a higher salary.
Decide how much you want to negotiate
Decide how much you're willing to compromise when discussing your salary. To maximise your earning potential, it's important to create a strategy for negotiating and stick to the plan. It's not always necessary to get every element of the offer accepted. Simply being willing to ask for what you want may help you feel more comfortable with the process.
Be prepared for counteroffers
While employers may be willing to give you an increase in salary, in some cases, they may reject your offer. If this happens, you may prepare alternatives that you may prefer to the salary that they initially offered. You may say something like, “While I am happy with my salary, I'm also interested in some other elements of the total compensation package. Is there anything else you can offer me?”
Confirm all details of the offer
After you have negotiated the terms of the total compensation package, it's essential to confirm all details. It's also important to sign all agreements that are put forth during this process. This secures that you receive the compensation that you and the employer agreed on during the negotiation process.
Remain professional at all times
While negotiating your salary or any other aspects of the package, it's important to remain professional at all times. Regardless of whether you choose to negotiate your initial compensation package, it's important to maintain a high level of professionalism when discussing compensation. The more you can work together, the better your chances are of finding a mutually beneficial situation.
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