What is base salary?

Base salary is the minimum amount of pay, before tax deductions, an employee will receive for doing their work. The base salary does not include bonuses, overtime, equity, or other forms of variable compensation.

Base salary is commonly determined on an annual basis but can also be provided on a weekly, bi-weekly, monthly, or even daily basis.

An employee’s base salary is also often different from their net pay or take-home pay. Take-home pay is what they will get in their bank accounts after taxes and other employee deductions.

How does base salary pay work?

Base salary is typically the amount that is highlighted as the compensation in a job offer. However, typically only makes up a portion of an employee's total compensation package.

The base salary is:

1. Fixed and not tied to company or individual performance
2. Paid regularly (usually monthly, semi-monthly, or biweekly)
3. Used to calculate things like overtime eligibility, benefits, and retirement contributions

Total compensation includes everything else: bonuses, equity, benefits, perks, and sometimes allowances (like remote work stipends). Total comp shows the full value of what the company is offering—not just what hits your paycheck.

Who defines base salaries in an organization?

Defining base salaries is usually a team effort. HR and compensation teams set the structure, using market data and internal benchmarks. Hiring managers may influence specific offers within that structure, and finance or leadership signs off on the budget. No one defines it in isolation—it’s part of a broader conversation about fairness, affordability, and attracting the right talent.

What factors influence base salary?

The most significant factors influencing base salary are:

1. Market data helps organization stay competitive—so they are not underpaying or overpaying compared to others hiring for the same skills
2. Internal equity keeps pay fair across teams—so people doing similar work earn similarly
3. Performance may influence where someone lands within a salary band or how quickly they move through it, but it usually doesn’t define the range itself
4. Location is highly relevant, even for remote workers—many companies adjust salaries based on cost of living, local market rates, or regional talent supply. That said, some companies are shifting to more location-agnostic pay, especially for in-demand roles or to stay competitive globally.

Read more:

1. Pay for Performance Model: Pros and Cons You Should Know
2. Best Practices for Creating a Location-Based Compensation Strategy

How does the base salary fit into a broader compensation philosophy or pay bands?

The base salary reflects an organization’s compensation philosophy in action.

If your philosophy is to “lead the market,” your base salaries will be set above market average. If you take a “pay-for-performance” approach, your ranges will leave room for strong performers to earn more over time.

Base salary sits within pay bands (or salary ranges), which define:

1. The minimum and maximum pay for each role/level
2. How employees move within or between bands (based on performance, promotion, or skills)
3. Internal fairness—so people in similar roles are paid consistently

In short, base salary is the most visible and foundational part of your compensation strategy. It needs to reflect both external realities and internal logic.

Read more: How to Create Salary Bands for Transparent Compensation Plans

How does base salary relate to merit increases or cost-of-living adjustments?

Base salary is the starting point, and merit or cost-of-living increases are how it grows over time:

• Merit increases are tied to performance—an employee does well, gets a raise. These increases are usually part of an annual review cycle and are used to reward impact and drive retention.
• Cost-of-living adjustments (COLAs) are based on inflation or market shifts, not performance. They help keep salaries aligned with rising expenses, especially in high-inflation regions.

Both types of increases directly adjust the employee’s base salary and are often decided together during the annual compensation planning cycle.

Read more: A 12-Step Guide to Running an Annual Compensation Cycle

What role does base salary play in compensation benchmarking?

Base salary is the anchor when comparing roles across companies.

Comp benchmarking uses external data to see how your base salaries stack up against the market for similar roles, industries, and locations. It helps answer:

1. Are we paying competitively for this job in this location?
2. Are we under- or over-paying for key skills?
3. Where do we need to adjust ranges to retain or attract talent?

Without a solid base salary comparison, it’s hard to have a reliable compensation strategy—because bonuses, equity, and perks vary widely and are harder to standardize.

How is a base salary typically paid?

Base salary is typically paid:

• In equal installments throughout the year (e.g., 12, 24, or 26 payments)
• Through direct deposit or paycheck
• On a regular pay schedule set by the employer
• With taxes and deductions (e.g., benefits, social security) withheld before the net amount is paid out

Example: If your base salary is $60,000/year and you're paid biweekly, your gross paycheck would be about $2,307.69 (before deductions).

How is base pay different from annual pay?

Base pay is essentially the minimum an employee will earn in a year or a specified period of time. Annual pay (or gross pay) considers all other factors, such as overtime, bonuses, sales commissions, and other benefits. Depending on your team’s compensation package, some employees can have very different annual salaries compared to their base pay.

Additional benefits and earning opportunities are a great way for employers to boost the total annual pay in lieu of providing a higher base pay. This can include perks like health insurance, additional time off, or even employee stock options. Keep in mind that in most situations, base pay cannot be lower than the minimum wage required by law.

Annual costs of an employee tend to be significantly higher than base pay. Looking at annual pay can give your company better insight into the cost of hiring an employee. However, you should also be considering things like employer costs and hiring costs when budgeting for a new employee.

How is a base salary different from hourly pay?

Hourly pay is the amount an employee is paid per hour on the job. The total compensation will depend on the number of hours worked and the hourly rate. Meanwhile, a base salary is a fixed amount of compensation that is based on a fixed number of hours. Most salaried employees are compensated based on an annual base salary.

Many employees tend to prefer a base salary over hourly pay as it provides consistency in income. However, the benefit for certain hourly employees is that they are typically eligible for overtime pay.

How is base salary calculated?

There are a few ways to calculate base salary. If you have the amount of total annual pay, you can subtract the following to calculate base salary.

• Bonuses, commissions, overtime, and any additional earnings
• Cost of benefits such as insurance premiums, pension contributions, and any other benefits paid for

If using hourly pay, you can calculate an employee’s base salary using the following formula.

Base salary = (Number of hours worked per week) x (Hourly rate) x (Number of weeks per year)

Example: 40 × $25 × 52 = $52,000 per year

The average full-time employee works approximately 35-40 hours a week.

If you know your paycheck amount, you can calculate your annual base salary with the following formula:

Base salary = Gross paycheck amount × Number of pay periods

Example: $2,500 × 24 (semi-monthly) = $60,000 per year

This only includes your fixed pay—exclude bonuses, commissions, or other variable pay when calculating base salary.

What is an example of a minimum base salary?

A minimum base salary is the lowest salary an employee can be paid for a particular role or level, often based on company pay bands, location, or legal minimums.

Example: In a tech company, the minimum base salary for a Software Engineer I in Austin, Texas might be $72,000 per year, while in San Francisco, it could be $95,000 per year to account for cost of living. In the U.S., this amount must also meet or exceed the federal or state minimum wage, depending on how it's structured.

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Book a demo to see how Deel can help you manage compensation and payroll across your global workforce, ensuring compliance and efficiency at every step.