The amount of compensation from your employer might include things that you do not consider your pay. Your annual base pay is something you will need to know if you ever have to apply for compensation under unemployment insurance, when you apply for a mortgage or when you need to evaluate two job prospects. Your annual base salary does not necessarily reflect the amount you receive on your paycheck.
Types of Compensation
When you work for an employer, you will receive a pay rate that is either based on the hours you work or a certain amount of pay over the entire year. Hourly employees might have a greater fluctuation from paycheck to paycheck, but salaried employees might have fluctuations in their working hours and be required to work overtime for the same amount of money. The first thing you need to do is determine whether you are an hourly or salaried employee.
Depending on your job, you might also receive other compensation from your employer too. These perks and benefits also have a monetary value, even though you might not see it directly. Other types of compensation include:
- medical and dental insurance
- paid holidays and vacations
- overtime at a higher rate
- retirement plans
- stock options
- educational expense benefits
- childcare compensation
- an onsite fitness center
These items are perks that make working for the company nice, aside from the pay you receive. Many companies will offer lower base pay but the value of the other types of compensation you receive makes your annual income higher. When it comes to deciding between two equally matched prospective employers, perks and bonuses can be the tie-breaker.
Calculating Your Income Base
Now that you understand the different types of compensation, let’s see how to calculate your income base. The process for calculating your annual base salary is different depending on whether you are an hourly or salaried employee. The first place to look is your pay stub.
Find the box labeled “gross pay.” This is your total pay before any deductions are taken out, like federal, state and local taxes. Other deductions include Social Security, Medicare, health insurance premiums, flexible spending accounts, and your contribution to a 401(k) or another retirement account.
What you have left is your net pay. The amount in the gross pay box is your income base.
Read More: How to Calculate Gross Income Per Month
Salaried vs. Hourly Calculation
If you are an hourly employee, you will need to deduct any compensation that was considered overtime pay from your gross pay. This will often be included in a separate box on your paycheck. If not, you will need to know the number of hours you worked overtime and multiply it by the overtime rate. You can then subtract this number from your gross pay to get your annual base income.
If you are salaried, you need to know how often you get paid. For weekly pay, you receive 52 paychecks per year. If you are paid biweekly, or every two weeks, there are 26 paychecks in a year. Semimonthly paychecks paid on the 15th and 30th of the month equals 24 paychecks per year.
Income Base for Salaried Workers
To find your income base if you are salaried, multiply your gross pay on a single paycheck by the appropriate number.
- Weekly Pay (each week): $800 per paycheck X 52 = $41,600 per year
- Biweekly Pay (every other week on a specific day of the week): $800 per paycheck x 26 = $20,800 per year
- Semimonthly Pay (twice a month): $800 per paycheck x 24 = $19,200 per year
As you can see, calculating your annual base pay is easy once you understand what all the boxes on your pay stub mean.
Read More: How to Convert an Annual Salary Into a Per Hour Rate
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.