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Base Salary in the UK Explained
May 5, 2023
In the UK, the base salary refers to the minimum amount an employer pays an employee for their work before any bonuses are added. The base salary is the main component of an employee’s compensation package.
For workers, it’s the foundation of earnings, which provides a sense of financial security and stability. Besides, a base salary is important in negotiations for salary increases and promotions. For employers, the base salary serves as a benchmark for determining bonuses and allowances, which potentially impacts employee retention rates.
In this article, we will discuss everything related to the base salary in the UK. If you want to know what a base salary is, how it is calculated, and what influences its amount, keep reading.
What Is Base Salary?
The base salary is the fixed amount of money that an employee receives from an employer. This amount is agreed upon and paid regularly (weekly or monthly). A base salary is determined before deductions, taxes, or other contributions. It also doesn’t include any extra benefits, bonuses, or allowances that an employee may receive on top.
To find out exactly how much employers should pay their employees, they evaluate the employee’s role, skills, and previous experience. The amount may also be influenced by the specifics of an industry and the company’s location. Overall, a base salary paves the way towards a transparent and fair compensation structure.
Base Salary vs Gross Salary
A base salary and a gross salary are not the same thing. Gross salary is the total amount of money you make from your job, including bonuses and deductions. In simple words, gross salary means how much you cost your employer in total.
An employer will deduct taxes and contributions from your gross salary before you get paid unless you earn less than the National Insurance and income tax thresholds. These amounts, along with any other deductions, will be listed on an employee’s payslip. The money you get after these deductions is called your “net pay”.
Deductions from Base Salary
A base salary can be subject to deductions, depending on a person’s individual circumstances and earnings. The UK government establishes strict rules regarding deductions. It is prohibited to take any money from your salary unless:
- it’s required by law (National Insurance, income tax)
- you agree in writing, and a deduction won’t reduce pay below the National Minimum Wage
- your contract says they can
- some other cases
The amount of deductions is not fixed, as it may be influenced by many factors. For example, the amounts of income tax and student loan repayments depend on how much you earn. There are two main types of deductions: compulsory and voluntary. When you get your payslip, you may see a list of them and the amounts deducted. The most common deductions include:
- NI and income tax
- pension contributions
- student and postgraduate loan repayments
- salary sacrifice scheme payments
- charity donations
- trade union subscriptions
Some deductions are mandatory regardless of your job, some are job-specific, and others are completely optional. Your employer will probably inform you about them, but make sure you get all the information before you start working.
What Extra Benefits Can You Get?
A brief reminder: a base salary does not include benefits or allowances. Still, you have a right to receive them on top of your salary, especially if you work hard. That’s why, each year, you may be able to earn much more than the base pay advertised. These additional benefits are:
- health insurance
- dental insurance
- transportation benefits
- tech benefits
- family planning benefits
- education assistance
- overtime (if you qualify for it)
- tips & bonuses
- covering some expenses
- company vehicle, etc.
How to Calculate Base Salary
Calculating base salary in the UK differs depending on the employer and your role. But a traditional method to determine it is to take the annual salary and divide it by the number of pay periods in a year. For example, if an employee has a salary of £30,000 and he/she gets money monthly, the base salary would be £2,500 per month.
Base salary of a full-time employee = annual salary / the number of payments per year
For part-time or temporary workers, employers usually calculate base salaries using hourly rates. This method is based on the number of hours a person worked and the rate of pay for each hour. Then, the base salary for a part-time employee will equal the total number of hours worked multiplied by the hourly rate. For example, a person worked as a salesperson for 20 hours a week, one month in total, and the rate was £13.00. So, their base monthly salary is £1,040.
Base salary of a part-time employee = the total number of hours X the hourly rate
Factors Influencing Base Salary
The base salary of an employee changes over time. You won’t have a fixed base salary for your entire life, not least because your level of experience will change. The amount depends on your job role, skills, qualifications, the industry you are in, location (the country or region where your employer’s company is based), and even the company’s budget. But there are even more factors:
- labour laws of the country or region
- UK labour unions
- level of education of an employee
- demand and supply balance in the labour market
- the ability of the company to pay
What Jobs Usually Have a Base Salary?
Most of the jobs where the basic salary is set are those where employees are exempt from national laws relating to overtime compensation. Employees whose hours exceed the standard amount specified in calculating base pay will not receive extra overtime compensation.
An attractive base salary is necessary to attract qualified workers, which is why large and successful corporations enjoying positive growth offer larger pay and attract talent easier than startups and SMEs. A competitive base salary also helps maintain employee loyalty and stability in the company.
According to statistics, higher base salaries are paid to administrative workers, chief executives and senior managers, medical practitioners, and IT specialists.
How Payrow Helps Manage Payroll and Compensation Packages
The base salary is a sore spot for both employees and employers in the UK. All employees want higher pay, but to have it, they need to show their skills, have a good background and be competitive in the labour market. Thanks to the base salary, employees can plan their finances with confidence.
Companies are also increasing base salaries to attract and retain the best talent, but the amount is tied to the company’s revenues and how much it is willing to spend on each employee. To balance profits and expenses and improve human resource management, companies often need accounting tools.
The Payrow platform can help companies effectively manage payroll, track employee income, and calculate taxes and other deductions. With our tools, it becomes easier to plan regular payments and comply with payroll laws and regulations. What’s more, Payrow offers customisable reports that allow companies to track payroll costs, analyse expenses, and budget for future payroll expenses.
Simplify accounting with powerful Payrow tools!
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