In a dynamic employment market, a competitive base salary can make a difference to attracting the right employees. But as a business you don’t want to overpay your staff. Find the right balance by understanding the different aspects of base salary and what you can add to create an attractive pay package.
Our Croner experts can help you with 24/7 advice on any employment aspects, including employees’ pay. Call us today on 01455 858 132.
What is base salary?
Base salary is the compensation that the employee expects to earn in exchange for their work. This is specified in most employment contracts in the UK as an annual base salary. It can also be expressed as a monthly amount, but this is less common.
Workers on a monthly or annual income will earn the same amount every month, except for deductions. Possible deductions can be made in a series of circumstances, such as sick or unpaid leave. Salaried employees tend to work for 35-40 contracted hours a week on a full-time role.
A salaried employee can end up working unpaid overtime to finalise a project. To keep staff motivated and reduce turnover, companies tend to offer time in lieu. This should compensate what they worked on top of their contracted hours.
Financial language can sometimes sound complicated and confusing. Such is the case when we talk about a base salary in a business environment. In commonly used language, “salary” and “wages” often mean the same thing. In financial terms, “wages” refers to hourly or daily payments. This is highlighted in a previous Croner article.
Staff that earn an hourly rate will usually have more flexibility around working hours and monthly income. Hourly paid workers see more variation in contracted hours, including zero hour contracts.
Is base salary before or after taxes?
Many people, both employers and their staff, ask the above question. The dilemma again stems from commonly used language versus financial wording.
A person’s base salary will be their gross base salary, also referred to as gross income. This represents the pay they have worked for, before taxes and National Insurance are deducted.
At the same time, an employee’s gross base salary is the pay they receive before any bonuses, benefits, and commission.
Another query we see businesses make is about base salary versus basic salary. In fact, here only the wording differs, and both terms define the same aspect. In financial terms, “base salary” is the official language used.
How to calculate annual base salary into hourly rate
As National Minimum Wage rates change, you need to ensure as a business that you continue to pay your employees within minimum thresholds. If you don’t, you are breaking the law. You risk hefty financial fines and being named and shamed by the government.
You also risk damaging your reputation. This can result in high turnover and new candidates avoiding your company. Not only this, but other companies might avoid doing business with you following a loss of reputation.
We have seen employers making genuine mistakes where they reuse job adverts from previous years. They forget to check and update the base salary offered or fail to calculate it to meet new National Minimum Wage requirements.
Let’s look at how you can convert annual salary into the relevant hourly rate.
You will first convert annual pay into a weekly rate by using the following formula:
Annual salary ÷ 52 = weekly rate
Next, you calculate the hourly rate you are paying your employee at:
Weekly rate ÷ hours worked per week = hourly rate
A competitive starting base salary can attract better candidates to your vacant roles. This can prove crucial when your industry faces an employment crisis, on top of the skills gap reported for years in the UK market.
To keep base salary competitive within your business, use Croner’s salary benchmarking tool.
Compensation and bonuses
Another way to attract and keep the right employees for your business is through offering a competitive compensation package.
Start by getting a good understanding of base salary versus total compensation. Simply put, total compensation is comprised of base salary plus bonus.
Depending on the industry and the nature of your business, you can offer several benefits and perks, such as:
- Time in lieu for overtime
- Flexible working
- Discounts on company products and services
- Gym discounts and/or passes
- Access to discount platforms such as Perkbox
- Enhanced pension, to top up the minimum legal pension contribution
- Dental insurance
- Private medical insurance
- Life insurance
Keep in mind that different people might prefer different benefits. This is based on their personal circumstances and lifestyle.
Talk to a Croner expert
At first glance, a base salary sounds like a straightforward financial concept. Things start to look more complicated when you consider gross base salary and total compensation. Especially when you are converting it into hourly wages.