Deciphering your payslip can be a complicated affair. On top of tax, National Insurance, bonuses, and other complex calculations, you may see an entry for basic salary, or basic pay. But what exactly is basic salary and how important is it for employees? Read on to find out more.
What Is Basic Salary?
Basic salary is a term seen commonly on employee wage slips and job descriptions. Also referred to as basic pay, an employee’s basic salary is a useful way for them to see exactly how much they are being paid as well as allowing them to compare their wage against other workers.
In simple terms, basic salary refers to the amount that an employee earns before any extras are added or payments are deducted. It is the bottom line for how much they earn and highlights how much remuneration they receive from their employers.
Basic salary, however, does not represent the exact amount a worker will receive. Both additions and deductions can be made that will alter the final amount an employee will receive.
What Can Be Added to Basic Salary?
There are a number of additional extras an employee can receive on top of their basic salary. These include:
- Bonuses. Many employers offer bonuses for staff based on performance, achievements, or seniority.
- Overtime payments. In most workplaces, employees will find opportunities to work extra hours over their normal shift pattern. This overtime can lead to extra payments in their monthly or weekly wage.
- Performance-related benefits and commission paid on sales. Some businesses rely on their staff to sell products to consumers. If they do, it’s likely they will offer a portion of the value of that sale to their staff as commission.
- Tips and gratuities. In some sectors, for instance, restaurants and bars, staff may be paid tips by customers. A tip is an additional payment above the cost of the products or services provided.
- Expenses. Some businesses will remunerate employees for costs they incur whilst working. This can be for things like travel and food costs, as well as things like uniforms and safety equipment.
- Allowances for internet and telephone costs when working from home. In the modern world, it’s increasingly likely that you may be asked to work from home. If this is the case, you may be able to claim some of the costs of working from your own property from your employer.
What Can Be Deducted from Basic Salary?
There are a number of deductions that can be made to basic salary. These include:
- Salary sacrifice schemes. These deductions can be made for things like childcare vouchers, share options, and travel/parking passes.
- Pension contributions. Most businesses in the UK are required to operate a staff pension scheme. If an employee opts to take up this option, then the cost of pension contributions will be deducted from their basic salary.
- Repayments against a company loan or student loan.
- Court order deductions. This can be for things like fines and child maintenance payments.
- Union subscriptions. If an employee joins a union, the subscription costs may be deducted from their wage.
- Tax and National Insurance. All employees in the UK are obliged to pay tax and National Insurance contributions to the Government.
What Laws Govern Basic Salary?
Contrary to popular belief, there are very few laws in UK legislation that dictate an employee’s rights where basic salary is concerned. There are a variety of laws that ensure that workers’ rights are protected and guarantee them a safe working environment, but few hold sway over how much they earn.
Probably the most impactful legislation on basic salary is the National Minimum Wage Act 1998. This act sets out the minimum wage that all employees must receive in the UK. The government regularly reviews this to keep it in line with inflation.
What is the Impact of Increases in the National Minimum Wage?
While an increase the National Minimum Wage sounds like an amazing prospect for most employees, there are a number of downsides for employers that need to be taken into consideration.
Some firms have reported lower profits as a result of minimum wage increases. This is often because they were either unable to bolster productivity in line with wage rises or raise prices or cut costs to balance out the figures.
One-way employers sometimes have to deal with an increase in their salary costs is to increase prices. This passes the increased costs associated with wage rises onto customers.
Cuts To Non-Wage Labour Costs
Some workers have stated that the arrival of the National Minimum Wage came with a trade-off that led to a deterioration in working conditions and non-wage benefits. With a higher basic salary comes lower bonuses and benefits.
The Arrival of Zero Hour Contracts
Less conventional ways of working, such as zero-hours contracts, have grown in popularity since the minimum wage was enacted. A higher potential salary has led to many employers looking for ways to ensure they only pay employees when they really need them.
What About the Good Side of an Increased Basic Salary for Employers?
Employees who are paid more are generally happier and more motivated. Higher pay often comes with increased productivity. In fact, employers often make it their chief aim to raise productivity in response to minimum wage increases. If they can get more effort from employees for the extra expense, then the two can balance each other out in the long run.
What if I Feel I am Underpaid?
If you feel that your employer is underpaying you for the job that you do, there isn’t a huge amount of things you can do. The first thing we would suggest is to speak to your manager and explain why you should be paid more. If this doesn’t work, then you could try looking for a new job. So long as you are being paid over the minimum wage, your employer is not obliged to increase what you earn.
An employee’s basic salary is typically the most important thing to them in their working life. The more they earn, the better off they are and the easier their finances will be.
We hope you’ve enjoyed our guide to basic salary. For more informative workplace guides, take a look around our website.