Your salary is literally your bread and butter, as it’s what puts food on the table regardless of your skill set. That makes the size of your paycheck a major concern, whether you’re job hunting or already working.
For long-term financial planning, you need to understand how employers usually budget projected salaries for their salaried employees. It also helps to know the difference between gross pay and net pay as well as basic salary and total compensation.
What Is Your Base Salary?
According to the Washington State Legislature, your base salary is your pay rate before additional earnings are factored in, such as bonuses or overtime pay, and it represents the guaranteed minimum amount you can earn.
It should at least meet the minimum wage requirements set at the federal level. Currently, according to the U.S. Bureau of Labor Statistics, the federal minimum wage amount is $7.25 per hour. However, based on U.S. Department of Labor reports, the wage is for those covered by the Fair Labor Standards Act.
When you get a job, your employer quotes you a specific pay rate, and it could be expressed as an annual salary or hourly rate. For example, you might start at $36,000 per year with bimonthly payments. That works out to $1,500 each payday before taxes. This dollar figure is a basic salary, or base pay, and doesn’t include additional earnings, such as commissions or bonuses. Also, a base salary doesn’t include the value of benefits, such as health insurance, vacation pay or profit sharing.
Employer Salary Projections
On the other hand, projected salary is your salary taking into account any commissions or raises you may be expecting. Projected salary is a term used by human resources professionals when they develop budgets. Employers have to plan ahead to manage labor costs and determine future salary needs.
An employer will estimate how much of a salary increase is required to attract and keep workers, weighing factors such as mandatory increases required by union contracts, the state of the economy and employee turnover.
For example, suppose your employer budgets for a three percent overall increase. The three percent figure is an average and doesn’t mean you get three percent more, especially for pay raises based on performance. For instance, the best employees might get a six percent performance raise, average performers a three percent raise and those with poor records no raise at all.
Making Your Own Projections
You can plan for the future by projecting your own earnings. With a base salary, this may be fairly simple.
Suppose you’ve started a job with a $36,000 base salary. You’ve been told to expect a 10 percent raise to $39,600 after a year if your work is satisfactory. By breaking this down into bimonthly paychecks of $1,650 before taxes, you can figure on a few hundreds extra each month after a year.
This projection allows you to plan for large purchases or additional savings. Bonuses and sales commissions are trickier because they are variable. Ask your supervisor, co-workers or human resources department what you can expect in terms of annual pay or hourly wages if you are one of the hourly employees.
If the average extra pay for people in your job is $200 a month, don’t plan for $500. Plan based on the averages so your projections are realistic.
Base, Bonuses and Benefits
Many people focus too much on base salary without considering the cost of living, time off, stock options and other additional perks. It’s nice to be quoted a big salary, but it may not be the best deal for you. For example, suppose one company offers a base salary of $40,000 but doesn’t offer much in the way of benefits.
On the other hand, a second company has set a salary cap for a similar job at $35,000. However, the second firm offers a compensation package that includes full health and dental insurance plus a bonus program that typically nets employees an extra $3,500 per year.
In reality, the second job will probably be better for you financially even though the quoted base rate is less than the higher base pay the first company offers. In short, look at the total compensation and not just the base salary when considering a job offer. It never hurts to use a salary calculator to get a better idea of what to expect.
This article was written by PocketSense staff. If you have any questions, please reach out to us on our contact us page.