Understanding Basic Salary: The Complete Guide for Employers

This comprehensive guide explains basic salary clearly so employers can design fair, compliant, and competitive pay—without confusing it with other pay terms.

What is a basic salary?

Basic salary (often called base salary) is the fixed amount you agree to pay an employee for their role—before adding variable pay (overtime, bonuses, commissions, allowances) and before subtracting deductions (taxes, insurance, pension, etc.). It’s typically quoted as an annual figure, but you’ll use the same concept for monthly, weekly, or hourly contracts.

Important: Basic/base salary is not the same as gross salary. Gross salary = basic salary plus all taxable additions (e.g., overtime, commissions, shift premiums, allowances) before deductions.

How is basic salary determined?

Role & industry economics: Scarce skills (e.g., software, finance, healthcare) command higher bases than roles in saturated labour markets.
Experience & performance: Demonstrated impact and seniority typically move a person higher in the range.
Education/certifications: Relevant degrees or licenses can influence position within band.
Market pay data: External benchmarks by function, level, and location keep you competitive.
Location: Cost-of-labour (not just cost-of-living) varies by region/city.
Internal equity: Pay parity with peers doing substantially similar work.
Laws & floors: Minimum wage, equal pay, pay transparency, and collective agreements set boundaries.

Tip: Anchor each job to a salary band with a midpoint based on market data. Place individuals within the band by experience and performance to balance competitiveness and equity.

Basic salary vs other pay terms

Basic salary is the fixed amount you pay for the job itself. Other concepts such as gross pay, net pay, on-target earnings (OTE) and total compensation build on top of that base pay.

Term	What it means (plain English)	Typical use case
Basic salary / base pay	Fixed salary or hourly rate for the job before extras or deductions.	Contracts, job adverts, salary bands.
Gross pay	Basic salary plus regular extras such as overtime, premiums, non-discretionary bonuses.	Payroll calculations, holiday pay rules, overtime.
Net pay (take-home)	What the employee actually receives after tax, social security and other deductions.	Employee bank transfers, budgeting tools.
Allowances & premiums	Extra amounts for certain conditions, e.g. night work, weekend shifts, on-call duty.	Shift work, 24/7 operations, statutory premiums.
Commission & bonuses	Performance-linked variable pay on top of basic salary.	Sales roles, performance schemes, incentive plans.
On-target earnings (OTE)	Expected annual earnings if targets are met (basic salary + target variable pay).	Sales recruitment and total comp offers.
Total compensation / total rewards	All cash and non-cash elements: basic salary, variable pay, benefits, pensions, perks, etc.	Employer value proposition, pay transparency and benchmarking.

👉 Use these terms consistently in contracts and salary bands so managers, HR and employees share the same understanding. This is especially important in pay transparency laws where “pay range” usually refers to basic salary or hourly rate, not estimated bonuses.

Legal anchors for basic salary

Lets take a high-level view of how basic salary connects to key employment law rules in the UK and US, so managers know which topics to flag with HR or legal. It does not replace legal advice, but it highlights where base pay interacts with minimum wage, holiday pay, equal pay, overtime and pay transparency.

In the UK, basic salary must always sit above the National Minimum Wage / National Living Wage for the worker’s age group and contract type. From April 2025, the National Living Wage for workers aged 21 and over is set to rise to around £12.21 per hour, while many employers voluntarily follow the higher “real Living Wage” published by the Living Wage Foundation.

Holiday pay rules also matter. UK government guidance confirms that workers are still entitled to 4 weeks of leave paid at “normal remuneration” (including regular overtime and some commission) and 1.6 weeks paid at “basic pay” only. Recent reforms also define irregular-hours and part-year workers and allow rolled-up holiday pay for these groups, but only if it correctly reflects normal pay.

Equal pay law adds another anchor. Under the Equality Act 2010 and related case law, employers must pay men and women equally for equal work across basic salary, bonuses, overtime, allowances and holiday pay. Regular pay equity checks on base pay within each job family are now a practical necessity, not a “nice to have”.
In the US, basic salary is shaped by three main federal concepts:
- The federal minimum wage (still $7.25 per hour in 2025) and higher state or city minimum wages that often apply in practice.
- The FLSA salary threshold for exempt “white-collar” employees.
- The overtime rules, where non-exempt workers must receive at least time-and-a-half for hours over 40 in a workweek.
In 2024, the US Department of Labor issued a final rule to raise the exempt salary threshold, but in November 2024 a federal court in Texas vacated the rule nationwide. As of early 2025, legal updates from firms such as BDO confirm that the threshold has reverted to the earlier 2019 level of $684 per week (about $35,568 per year), while appeals continue.

For managers, the practical takeaway is simple: if a role is treated as exempt, you must ensure its basic salary is at least at the current federal (or higher state) threshold and that the duties test is also met. If someone falls below the threshold or fails the duties test, they should normally be treated as non-exempt, with overtime based on their regular rate of pay, which includes most non-discretionary bonuses.
Across many US states, pay transparency laws now require employers to publish or share good-faith salary ranges (usually basic salary or hourly wage) in job postings or upon request. Recent guides for 2025 note that more than a dozen states plus Washington, D.C. have some form of salary range disclosure requirement, often combined with rights for employees to see the range for their own role.

The UK does not yet have a nationwide statutory requirement to publish pay ranges in adverts, but government and advisory bodies encourage employers to do so, and equal pay enforcement increasingly expects evidence-based pay scales. In practice, using clear salary bands and publishing base pay ranges is becoming the norm in competitive labour markets.

For employers and managers, this means your basic salary bands and pay ranges must be defensible, up-to-date and explainable. You should be ready to show how a given employee’s base pay fits into the band, and how they can progress over time.

Basic salary in a hybrid and remote workforce

Hybrid and remote work make basic salary decisions more complex, because location, role type and labour markets no longer match one office postcode.

Geo-pay zones vs national pay bands

Many organisations now choose between geo-pay zones (different base pay by location) and national or global pay bands (same base salary for the role, wherever people live). Consultancy research shows companies mixing models: some adjust pay when employees move to cheaper regions, while others keep a single rate to support flexibility and fairness.

Approach	When it works best	Main risks
Geo-pay zones	When you have large pay differences between locations (e.g. London vs rural areas, SF vs smaller US cities) and want base pay to track local cost of labour and hiring markets.	Complex to administer, harder to explain to employees, can feel unfair when remote teams collaborate closely, higher risk of dissatisfaction if pay is reduced after relocation.
National pay bands	When roles are fully or mostly remote, when you want a simple and transparent pay story, or when you compete for talent nationally rather than locally.	Higher fixed labour costs in lower-cost regions, risk that bands become uncompetitive in the highest-cost cities, pressure to adjust bands more often if market rates move quickly.

Whatever you choose, write down a simple geo-pay philosophy that explains when location will affect base pay, and when it will not. Make sure your approach still respects local minimum wage rules and pay transparency laws in the UK, US and any other country where you hire.

Negotiating and communicating basic salary

This section helps you talk about basic salary, pay ranges and total compensation with candidates and employees in a clear, compliant way.

Prepare your offer and salary band story

Before any salary conversation, know the band for the role, where your budget sits in that band, and what your pay philosophy is (market median, market-leading, etc.). Many US states (including Illinois, Minnesota and Massachusetts) require you to share a good-faith salary range in job postings and often with existing employees on request.

👉 Even where pay transparency is not mandatory, candidates now expect to see base salary ranges and to understand how offers are set. Have a simple explanation ready for how you use market data and internal equity to place people within the band.

Explain total compensation, not just base pay

When you present basic salary, also outline:

Variable pay (bonuses, commission, shift premiums).
Benefits (pension, healthcare, paid leave, allowances).
Any flexibility perks (remote work options, predictable schedules).

Use clear examples rather than complex formulas: for instance, “On-target earnings for this sales role are £40,000 base + £10,000 commission if targets are met”.

Document and follow a clear script

Create simple salary conversation guides for managers so they follow the same logic each time:

Confirm the pay range for the role and where the offer sits in that range.
Explain briefly how you benchmarked the role and checked internal equity.
Walk through base salary, variable pay and key benefits as one total compensation story.
Note any future pay review points (for example, after probation or annual review).
Consistent scripts reduce the risk of off-the-cuff promises, bias, and later grievances about unfair treatment.

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Frequently Asked Questions

Yes. In most HR and legal contexts, basic salary and base pay mean the same thing: the fixed pay you agree for the job before overtime, allowances, bonuses or deductions. It can be expressed as an annual salary or an hourly rate, depending on the contract.
No. Basic salary does not include overtime premiums, commission, shift allowances, tips or discretionary bonuses. Those elements sit on top of base pay, although in some legal calculations (such as overtime in the US or holiday pay in the UK) certain bonuses and premiums must be taken into account when working out the correct rate.
You can usually only reduce base pay with clear agreement and proper consultation, and never below legal minimums or contractual commitments. In the UK and many US states, unilateral cuts to basic salary can amount to breach of contract and, in some cases, constructive dismissal. Any move from base pay to higher variable pay also raises risk around income stability, equal pay and morale.

As a rule of thumb, use higher bonuses or commission as addition, not replacement, unless you redesign the whole pay structure and document consent carefully.
Promotions with only a token base pay rise can damage trust and create equal pay problems if peers in the higher grade earn much more. Best practice is to place promoted employees within the new salary band, usually not at the very bottom, and to explain how their base pay can progress further.

If budgets are tight, it is often better to delay a formal promotion until you can fund a meaningful base pay increase than to change the job title without matching the salary band.
You can, but only if your contracts, policies and consultation processes support it. Many organisations use move-related pay reviews that adjust base salary up or down within defined limits based on geo-pay zones, market data and minimum wage rules. Informal, ad-hoc changes made just for some people can quickly create discrimination risks and internal equity issues.

Document your approach and explain it in writing when someone moves, so they understand how location affects their base pay now and in the future.