How to Calculate Annual Income to Find Base Pay

How to Calculate Annual Income to Find Base Pay
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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 submit for unemployment insurance, apply for mortgage or evaluate two job offers. Your annual base salary does not necessarily reflect the amount you receive on your paycheck, so it's important to look at some FAQs for help on determining the amount.

Hourly Employee vs. Salaried Employee

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 receive an hourly rate for each hour worked. Because an hourly employee might have a greater fluctuation in hours each workweek, they may also see a different check amount each pay period.

Full-time salaried employees might have fluctuations in their working hours, but be required to work unpaid overtime for the same amount of money. According to the U.S. Department of Labor’s Fair Labor Standards Act (FLSA), only nonexempt employees must be paid overtime.

To calculate your base salary, the first thing you need to know is whether you are an hourly or salaried employee.

What Types of Compensation Are Not Included in Base Salary?

Very often, base salary or base pay is just one facet of your total compensation package. Depending on your job, you might also receive additional types of compensation from your employer. These perks and benefits also have a monetary value, even though you might not see it directly. Other types of compensation include:

  • insurance (medical, dental, life, disability)
  • paid time off (vacation, sick, personal, etc.)
  • bonuses
  • overtime at a higher rate
  • retirement plans and contributions
  • stock options
  • educational expense benefits
  • professional development funds
  • childcare compensation
  • an onsite fitness center

These items are perks and fringe benefits that make working for the company nice, aside from the pay you receive. Many companies produce a total compensation statement each year to let employees know the estimated dollar value of these perks, in addition to their yearly salary or hourly wage.

When it comes to deciding between two prospective employers that are equally matched in annual income, perks and bonuses can be the tie-breaker.

However, it should be noted that base pay does not count these items as earnings, notes the Rochester Institute of Technology. There is no dollar value associated with them when determining base salary.

Use Only Gross Pay to Determine Base Salary

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.

The Consumer Financial Protection Bureau advises that you 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 income or take-home pay. The amount in the gross pay box is your income base.

If you have supplemental wages in a pay period, such as tips, bonuses or commission, it may be lumped into your gross pay, but should not be calculated as part of base pay.

For instance, if your regular earnings are $2,500 per pay period, but you have also earned $1,000 in bonuses and $500 in commissions, your gross pay will be $4,000. It is important to only count the $2,500 regular earnings when calculating annual base salary.

Use the Number of Pay Periods for Base Salary Calculation

If you are an hourly employee, you must deduct 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 overtime hours and multiply it by the overtime rate. You can then subtract this number from your gross pay to get your base income.

Also deduct any supplemental wages that are not part of regular pay. Anything that is not related to hourly pay must be deducted before calculating annual base salary.

To take the earnings from one paycheck and calculate annual base salary, you need to know how many pay periods are in a year for your employer.

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 equal 24 paychecks per year.

Calculating Annual Salary for a Salaried Employee

To find your income base if you are salaried, multiply your gross salary 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.

Calculating Annual Salary for an Hourly Employee

Hourly employees will also multiply gross pay per pay period by the number of periods. If an hourly employee works a fixed amount of hours each week and gross pay remains constant week-to-week, there is no difference in the calculation.

However, if an employee’s hours vary each pay period, some estimating and projecting must be part of the calculation. By using the average number of hours worked per period, an employee can estimate gross pay and then multiply by the number of pay periods to determine annual base pay.