Base Wage Rate: How Does It Work?
What Is Base Wage Rate?
In order to make sure that an employee receives adequate compensation in return for their services, many employers provide them with base wage rates. These rates can be set on an hourly, weekly, bi-weekly, monthly, or annual basis, depending on the type of work being done.
Base rates also vary depending on the role a worker holds in the organization: from the training period to any managerial position. Lanteria will explain what exactly base wage rate is, what it depends on, and the difference between base pay and gross pay.
Defining Base Wage Rate
Base wage rate (also known as base pay) is the minimum, initial amount of money that an employer pays a worker for work performed. It is usually negotiated during the recruiting process concerning the pay rate and schedule. This rate does not include benefits, commissions, or other forms of compensation that an employee may receive in addition to the base wage.
A base salary does not include:
Special assignment pay
Employer-paid insurance premiums
The basic wage rate varies considerably by industry and profession, although it cannot be lower than the federal or state minimum wage rate.
The downside to the base wage rate is that employers are usually wary of hiring new workers as they will have to pay them this minimum pay in a package, thereby creating unemployment.
However, for employees, a base salary means the following advantages:
Economic security. You know you will always have a salary, and paying bills will never be a problem at a base salary job.
Stability. Most base salary jobs offer long-term positions.
Training. Part of the stability and structure typically offered with a salaried position is a training program.
Expenses. Most (not all) salaried positions provide basic expense reimbursement, usually mileage and cell phone at a minimum.
Benefits. With few exceptions, a basic paid job will offer health insurance, possibly along with other exciting benefits.
How Base Salary Works
Base wage rate makes sure that employees receive adequate pay for their services without being exploited by their work. These rates are sometimes country-specific.
An employee who receives a base salary is expected to perform the whole job in exchange for a base salary. They are also usually expected to work at least 40 hours per week to meet the requirements and objectives expected from the job. Base wages are usually paid at regular intervals. Most often, once every two weeks, when the annual salary is divided into 26 equal salaries throughout the year.
Smart employers assign goals and measurable results to jobs for which a base salary is paid. This allows both the employer and the employee to determine that the latter is actually performing the whole job for which they get the base salary.
Base wages are determined by several factors, including market wage rates for people doing similar work in similar industries in the same geographical position, the people available to do the work, and wage rates and base salary ranges set by a particular employer.
A base salary is also affected by market wages outside the organization's region, as desired skills become harder to acquire and employers raise base wage rates to compete for the candidates they need.
Summing up, base wages are based on:
Cost of living inflation
With that being said, if the cost of living rises or a worker moves to a different state or gets a promotion, their base salary will change. However, it does not change in any other circumstances.
How Much Is a Competitive Base Salary?
As said before, base wages vary significantly depending on the company, job position, geographic location, responsibilities, and other factors. But you can find out more about base wage ranges from several sources.
A trusted source of information on basic wages is the US Bureau of Labor Statistics (BLS). BLS offers payroll data for specific roles in different industries and people who work in certain geographic regions. You can also view data by job classification, characteristics, industry, occupation, gender, state, and city area. You can see information not only about wages but also about benefits, too.
The Society for Human Resource Management provides employers with more detailed information on base salaries through the SHRM Compensation Data Center. Many organizations engage in base salary market surveys in order to create a reliable resource for base salary research.
Other places to look for base wages include base salary calculators and extensive resources available on websites like PayScale.
Overall, these sites allow employers to enter job and region-specific factors to see the range of base wages rates paid for specific jobs. It also allows job seekers to see the same information, eliminating an advantage employers once had in the past and putting both parties on an equal footing in base wage rate negotiations.
Gross Pay Vs. Base Pay
Many people mix up base wages and gross wages, which is understandable since the two terms describe the same or similar things. Taking a look at their functionality can help unravel the confusion.
In general, HR departments use the base salary as a means of setting compensation rates. As we have already discussed, a base salary is the minimum amount of money that a worker should receive. An employee can earn extra money, for example, by working overtime or getting incentive bonuses.
In turn, gross wages are wages received. It includes the worker's base wage as well as additional earnings and income. Gross wages are more in line with small businesses' payroll functions and refer to workers' wages.
In short, here is the formula to help you understand how gross pay and base pay work:
Gross Pay = Base Pay + Additional Compensation
We hope that this cleared up any confusion you may have had about the base wage rate. If you would like more career insights, check out our other articles from Lanteria HR experts!