Base salary: Complete guide for employers and employees

You’re ready to make an offer, but the numbers are … fuzzy. You’ve got a budget, a rough salary range, and a few past hires for reference, but no real definition of base salary for the role. So you guess. The candidate negotiates, and you end up stretching just a little bit to make everything work because talent like this doesn’t come along every day. And just like that, you’ve created a pay gap that you’ll have to explain during a raise request, pay equity review, or an exit interview. 

In this article, we’ll break down what base salary actually covers, how it differs from gross pay and total compensation, the connection to base pay, and why it’s such a critical part of hiring, payroll, and internal equity. You’ll also learn how to set it clearly and consistently, so situations like this don’t take you by surprise.

What is base salary?

Base salary is the fixed annual amount paid to salaried, exempt employees regardless of how many hours they work or any extras they might earn. It doesn’t apply to hourly workers, whose pay is based on time worked, rather than a set figure. If you’ve ever wondered, “What is annual base pay?”, this is it: the agreed-upon yearly compensation that stays the same from paycheck to paycheck, barring raises or promotions.

In practice, base salary is the number that underpins most compensation discussions, powers your payroll system, and gets plugged into everything from budget forecasts to benefits calculations. It’s how your company plans, your managers compare roles, and your team judges fairness. If this number is off, everything else tends to drift.

What’s included (and not included) in base salary?

When people ask about base salary, they’re usually really asking, “What is the minimum base pay? And what does that include, exactly? And how is that number used?” Here’s how to explain it clearly, whether you’re writing a job offer, updating a payroll system, or just answering some tough questions from a team member.

What base salary includes

Base salary includes only the fixed pay that exempt employees earn for doing their core job. It doesn’t cover things like bonuses or commissions that can boost take-home pay, or benefits like health insurance or retirement contributions.   

What base salary excludes

Base salary excludes anything outside the employee’s fixed wages. That means no bonuses, commissions, or employer-paid benefits. If someone earns $90,000 in salary and receives a performance bonus of $10,000, the base salary is still $90,000. Additional compensation doesn’t change that underlying number—it’s handled separately in payroll and doesn’t appear in salary band reviews.

Base salary vs. gross pay vs. total compensation

These terms get tossed around a lot in payroll and HR conversations, and while they’re related, they’re not interchangeable. Knowing the difference matters for budgeting, reporting, and setting the right expectations with employees. 

If you’ve ever tried to explain base pay vs. gross pay, you know how easy it is for the terms to blur, especially when employees start comparing numbers from pay stubs or screenshots.

• Base salary is the fixed amount an employer agrees to pay an exempt employee for regular hours worked. It doesn’t change if time spent on the job increases or decreases, and it doesn’t include sweeteners like commissions or bonuses. It stays the same from paycheck to paycheck, barring a raise or a merit bump. This is the number that shows up on an offer letter and what most employees think of as their “real pay.” (Be sure to separate base salary from terms like OTE salary, which includes expected variable compensation.)

• Gross pay is how much any employee earns per pay period before removing deductions. It includes base salary, plus anything extra the person earned in a given period, like overtime, commissions, or a spot bonus. It’s what your team earns before taxes, but not what they take home.

• Total compensation includes the value of the base salary, plus things like health insurance, equity, retirement, and paid time off. This is the number companies like to show off in slide decks and recruiting pitches. It’s a great selling point, but you need to break it down if you want to avoid confusing candidates.

From an employee’s perspective, mixing these up can lead to misunderstandings about what they actually earn. Internally, keeping these terms straight helps teams stay clear on cost, compliance, and communication.

How is base salary used in benefits and HR decisions?

A lot of behind-the-scenes decisions in HR and payroll start with one number: base salary. It’s the foundation for working out things like retirement contributions, bonus targets, salary bands, and even leave accrual in some systems. When you’re building a compensation plan, base salary is typically the biggest cost driver, even more than flashy extras.

Say your company matched 4% on 401(k) contributions. That percentage usually applies to base pay, not commissions or overtime. Same with bonus formulas, many of which are written as “X% of base,” which means you need to get the number right to compensate high performers properly without breaking the bank. It’s also the foundation of internal pay equity. When you compare pay across roles, locations, or teams, base salary gives you a clean metric. It also helps you course-correct early. As more states adopt pay transparency laws, those gaps are harder to hide.

How to calculate base salary in 5 steps

There’s no single formula for setting base salary, but you do need a process you can stand behind. A consistent approach helps you stay competitive, sidestep equity issues, and explain your total compensation package with confidence when it’s time to make an offer.

For HR teams asking how to calculate base salary, the steps below walk through how to make that call with clarity and structure.

Step 1. Research market rates and industry benchmarks

Start by looking at what similar roles pay in your industry. Tools like salary surveys, job boards, or compensation databases can give you a ballpark, but don’t stop at job titles. Focus on responsibilities, scope, and what the market pays for the work, and use those numbers to pressure-test your internal pay bands. Otherwise, you risk throwing out lowball offers that turn off top talent or only attract candidates with an eye to monkeybranch to something better.

Step 2. Evaluate the candidate’s experience and education

Once you establish a market range, you need to work out where a given candidate falls within it. Years of experience, additional certifications, and a relevant degree can all play a role. You’re not just rewarding resume bullet points, however. You’re weighing how quickly someone can start to contribute and the degree of impact you expect them to deliver.

Step 3. Ensure internal pay equity

Even if the market rate suggests you ought to write a bigger check to land top talent, you need to make sure your offers fit within the existing salary range you’ve established for similar roles. That doesn’t mean paying everyone the same, but you need to tie discrepancies to specific, objective criteria and stay inside the guardrails of an established pay structure. Equity issues may start as grumbling, but your best workers can always decide to vote with their feet if they feel undervalued.

Step 4. Account for geographic location

The same job doesn’t always carry the same price tag in different places. Cost of living, local talent markets, and your own remote work policy all factor in. If you’ve committed to location-based pay, stick to it and document your reasoning. If you’ve gone the flare-rate route, make sure your compensation packages hold up for employees living in high-cost areas. “It’s the same job,” won’t cut it for even the most loyal team member if the rent check can’t clear.

Step 5. Consider job responsibilities and scope

Two people with the same title can actually do very different jobs. One might lead a team, own a major system, or carry more decision-making weight, while the other plays more of a supporting role. Titles don’t tell the whole story, so don’t let them determine pay rates. Base salary should track with scope more than labels, with shouldering more work or responsibilities translating directly into a larger paycheck.

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Examples of base pay calculations

If you manage both salaried and hourly employees, it can be helpful to zoom out and look at base pay more broadly. Base salary applies only to exempt employees, while base pay covers any fixed earnings tied to regular hours worked. What they all share is that they exclude bonuses, overtime, and benefits. 

Morgan, who handles HR for Acme Corp., uses the same logic across roles, with slight tweaks depending on how someone is paid. 

Example 1: Base  salary for an exempt employee

Casey is a full-time project manager for Acme Corp., earning $3,000 per pay period. Because they’re exempt, they don’t qualify for overtime. Morgan calculates Casey’s base salary per pay period by multiplying the per-period amount by the number of pay periods. 

If the company runs on a semi-monthly schedule, that means a total of 24 pay periods per year. 

$3,000 ×24 = $72,000 annually

Casey’s gross pay each period works out to $3,000 before any deductions for payroll taxes or benefits. 

Example 2: Base pay for hourly worker (non-exempt)

Jordan works in Acme’s customer service department and earns $20 per hour. They’re non-exempt, so they’re eligible for overtime pay. In one period, Jordan worked 80 regular hours and five hours of overtime.

To find Jordan’s base pay, Morgan multiplies the number of hours worked by Jordan’s hourly rate.

$20 × 80 = $1,600 in base pay for this period

The five hours of overtime will increase the size of Jordan’s paycheck for the period, but they don’t play a role in calculating base pay. 

Example 3: Base pay for a part-time hourly worker

Riley is a part-time warehouse assistant making $18 an hour. They worked 25 hours this pay period, and Morgan applies the same formula that she used for Jordan, another non-exempt employee: hours worked multiplied by hourly rate.

$18 × 25 = $450 in base pay for the period

Even though Riley works fewer hours, the approach to calculating base pay doesn’t change. It’s still hourly rate × hours worked, but without overtime, commissions, and other extras.

Streamline payroll management with Rippling

When base salary needs to stay consistent across teams, systems, and countries, your payroll platform can make or break the process. Rippling’s global payroll software offers an end-to-end payroll management solution capable of automating even complex tasks for a global organization without sacrificing security and control.

Using natively built payroll software, Rippling offers a seamless data pipeline that consolidates all your payroll functions on a single platform for a globally compliant pay run. Combined with Rippling’s suite of benefits management and time and attendance tools, it streamlines the entire payroll process.

Designed for a high degree of flexibility, Rippling also allows you to customize your payroll workflows, approvals, and reporting at a granular level. Because Rippling processes your payroll internally, rather than relying on local vendors and aggregating their data, you receive prompt updates on the up-to-date internal data. Role-based approvals and reporting also protect the confidentiality of your data internally.

FAQs about base salary

What is the federal minimum wage?

The federal minimum wage in the US is $7.25 per hour (a rate that hasn’t changed since 2009). Many states and cities set higher local minimums, however, so be sure to check the laws in your jurisdiction before finalizing pay periods or hourly rates. Remember, too, that overtime, commissions, and other forms of compensation generally don’t count towards meeting minimum wage requirements unless specific rules or exceptions apply. 

Is base salary negotiable?

Yes, base salary is almost always negotiable, especially when you’ve just extended a job offer. Employers usually set a salary range based on required experience, internal equity, and role responsibilities, but within that range, candidates have room to negotiate. If you’re managing offers, be clear about where you have wiggle room and where you don’t. For roles with a structured compensation package, it can help to communicate the full value of what’s included beyond the base, like health insurance, retirement, or overtime pay.

How often is base salary paid?

Base salary is typically paid on a biweekly, semi-monthly, or monthly schedule, depending on your payroll system. Some salaried employees receive the same amount each period, while others might see slight variations depending on deductions, taxes, and optional benefits like health insurance. The timing doesn’t affect the base pay itself, just when your employees receive their paychecks. Consistent language across job offers and contracts helps keep everyone aligned.