What is base pay?
Base pay is the agreed-upon rate or salary an employee earns before deductions or incentives. Also known as a base wage rate, the figure doesn’t include overtime, bonuses, taxes, or benefit deductions.
Employees’ base pay depends upon their industry, experience, geographical location, and education. An employee may receive an hourly rate or a fixed salary. These figures may be negotiated at hiring and are stipulated in a contract of employment.
Companies look to compensation management software to create and manage salary packages for their employees. This software lets HR teams determine fair and equitable base pay and bonus structures, and provides an at-a-glance dashboard view for data visualization.
Factors influencing base pay
Even if an employee stays in the same type of role, their base pay can vary depending on where they work or live. Some factors affecting base pay include:
- Location: Some cities or states have a higher cost of living than others. Depending on where they live, a person might pay more or less for basic expenses like housing, groceries, and transportation. Compensation usually takes into account these disparities. For example, a person living in the Bay Area may earn more for the same type of work as a person in a small town in the Midwest.
- Labor market: Companies in certain industries may need to adjust their base pay because of economic conditions. For instance, if an area’s restaurant industry is struggling with staffing, some restaurants may increase base pay to attract workers. Other restaurants then increase their starting salaries to remain competitive.
- Industry: Some industries offer higher pay rates than others. A graphic designer in the software industry may start at a higher base pay than one in the newspaper industry.
- Specific employer: Base pay varies by employer, too. Some companies prioritize spending on salary compensation packages instead of marketing and advertising, for example.
- Education or training: A worker’s past education or training may influence their base wage rate. Through continuing education, a person can earn additional degrees or certificates that increase their value as an employee because they bring new skills to a company or save the company costs in training.
- Experience: In most industries, base pay increases as a worker’s experience level rises. A human resources professional with 15 years of experience usually earns more than one with five.
Benefits of base pay
A solid pay structure helps companies serve employees in a fair, consistent way, achieving HR clarity and confidence. Some specific benefits of creating base pay minimums include:
- Attracting and retaining employees. Increasingly, job seekers appreciate seeing pay ranges posted in listings. Knowing that a company offers healthy base wage rates attracts top talent and makes employees more likely to stick around once hired.
- Increasing efficiency. Clear guidelines about base pay and additional compensation for specific types of roles make the hiring and onboarding processes more efficient.
- Avoiding discriminatory practices. Companies create more equity in their compensation practices with documented base pay ranges. Employees can rest assured that they aren’t being paid less than a peer of a different gender, religion, sexual orientation, or ethnicity.
- Assuring compliance. In the US, the Department of Labor regulates the administration of the Fair Labor Standards Act, which governs overtime, minimum wage, child labor, and recordkeeping. Having a transparent base pay system in place helps ensure regulatory compliance.
Base pay best practices
Companies sometimes need help determining where to start with base pay because so many factors go into it. Some best practices that help set accurate and competitive wages are discussed below.
- Think long-term. Low turnover and employee retention empowers companies to build a stable, positive corporate culture. When selecting base pay for new hires, businesses should choose competitive salaries or wages so that employees want to stay.
- Conduct market research. Plenty of information exists online to inform a company’s compensation packages. In the US, the Bureau of Labor Statistics shares salary data for many different industries. Companies can analyze data on industry averages adjusted for factors like experience and region to gain confidence in knowing their base pay is on par with their competitors.
- Be upfront. A salary transparency movement is gaining traction. By setting base pay ranges upfront in job listings, job seekers know if a position is a good fit before jumping through application hoops. Plus, it’s clear that the salary is based on the job itself, not on factors that could be grounds for discrimination.
- Select the right tool. For both mid-size companies and enterprises, keeping track of salary structures and base pay gets confusing fast. Selecting the right human resources platform or compensation management software allows companies to easily administer rates and spending.
Now that you’ve figured out base pay, it’s time to decide whether to add merit pay into the mix.
Kelly Fiorini
Kelly Fiorini is a freelance writer for G2. After ten years as a teacher, Kelly now creates content for mostly B2B SaaS clients. In her free time, she’s usually reading, spilling coffee, walking her dogs, and trying to keep her plants alive. Kelly received her Bachelor of Arts in English from the University of Notre Dame and her Master of Arts in Teaching from the University of Louisville.
