It’s critical that you understand what a base salary includes before engaging in an employment contract.
Understanding the terms, and your legal rights allow you to be confident in your negotiation ability.
If you want to learn more about what a base salary includes, ready along!
What exactly is a base salary?
In Australia, a base salary includes the fixed monetary compensation paid to an employee before any additional benefits, bonuses, or allowances. It excludes superannuation, overtime, and other financial perks but serves as the foundation for calculating entitlements like leave and termination payments.
In return for work, an employer pays their employee regularly over 12-months. Payment is commonly weekly or bi-weekly, released as agreed in the Employment Agreement.
Most importantly, it’s the minimum the employee must be paid. Subsequently, it must be in line with the appropriate minimum pay rates and conditions of employment.
How does it differ from hourly rates of pay?
A base salary is consistent. In return for the agreed pay, an employee is expected to work a full 38-hour week.
The timing and duration of shifts are irrelevant to the base salary.
Hourly rates of pay, also referred to as wages, vary based on the time of day, and total duration of shift.
An employee is entitled to a higher hourly rate when working weekends, night-shifts, public holidays, or over-time. On the other hand, they aren’t entitled to the full 38-hour working week.
Therefore, their hours may differ, dependent on allocated shifts. This can lead to inconsistencies in pay received, making it difficult for employees financial planning.
How does it differ from total pay received?
The total pay received is inclusive of many factors, including allowances, performance bonuses, and taxes. Therefore, it’s rare that a base salary reflects the true payment received.
If an employment contract is;
- $900 per week; and
- 9.5% superannuation; and
- $100 weekly car allowance.
The base salary is the $900 per week. However, after receiving the car allowance and paying taxes, the employee may only receive $850 weekly.
This will depend on their tax bracket. As required by law, the superannuation is paid separately.
What does a base salary not include?
A base salary is independent from any form of benefits, bonuses, superannuation payments, car allowances and other compensation incentives.
Overtime wages and taxes are not part of the base salary.
Additional incentives or rewards may exist separate from an employee’s base salary. A full-time employee is legally entitled to certain benefits, including annual leave, sick leave and superannuation.
Other benefits, not required by law, may be awarded based on performance.
What are the benefits of a base salary?
A base salary is secure. Subsequently, on a weekly, bi-weekly, or monthly basis, the employee can expect a consistent amount.
This is the total pay received, after accounting for benefits and taxes. This pay is based on the employment contract, allowing the employee to plan their finances accordingly.
Additionally, it removes the stress of demanding hours to achieve the desired pay.
Furthermore, an employer is unable to dock an employee’s salary if their performance is poor. The employee also may not work a full 38-hour week.
However, consistently poor performance can lead to a breach of contract. This allows an employer to withhold payment, or terminate contract. To ensure a fruitful working relationship, it’s essential each party upholds their obligations.
What’s the minimum salary?
An enterprise agreement determines the base rate of pay. It can’t be less than the national minimum wage, regulated by the Fair Work Act 2009 (Cth).
The minimum wage will be lifted from the 1st of July 2022.
It will increase by $40 per week, which amounts to an increase of 5.2%.
Therefore, the new National Minimum wage will be $812.60 per week or $21.38 per hour.
If your employees are covered by an award, the Fair Work Commission (FWC) has announced that minimum award wages will increase by 4.6%.
This is subject to a minimum increase for award classifications of $40 per week and based on a 38-hour week for a full-time employee.
This means minimum award wages:
- above $869.60 per week, will get a 4.6% increase
- below $869.60 per week, will get a $40 increase.
Final thoughts
Navigating an employment contract can be difficult. In short, a base salary is the minimum legal pay, exclusive of any forms of benefits or taxes. Above all, if you believe that you are underpaid, or if you struggle to understand certain aspects of an employment contract, you may find a employment lawyer to assist your enquiries.
