Base Wage Rate

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What is a base wage rate? 

A base wage rate is a term for the minimum amount an employee is paid in exchange for rendered work and services. The base wage rate is alternatively referred to as base pay. It can be expressed in many forms: hourly wage, weekly, monthly, and annually. The base wage rate is agreed upon between the employer and an employee during the recruitment process and is stipulated in the employee contract. 

It is important to note that the base wage rate is not influenced by additional compensation that an employee is entitled to. It is the standard or minimum pay an employee is given per pay period. This means that the amount of bonus, incentive, or overtime pay that an employee receives does not change their base wage rate. 

Is the base wage rate calculated before taxes? 

Yes, the base wage rate or base salary of an employee is the amount before taxes such as income tax, Social Security, and Medicare are deducted. 

Is the base wage rate equal to gross pay? 

No, the base wage rate and gross pay are not the same. In defining the base wage rate or base pay, keep in mind that it is the minimum amount of base pay that an employee can earn. 

The base wage rate does not include the following additional forms of compensation:

On the other hand, gross pay is the sum of the base wage rate plus any additional compensation mentioned above. 

gross pay = base wage rate + additional compensation

Is base wage rate equal to gross salary? 

As a general rule, the base wage rate and gross salary are not the same. In the same way that base wage rate and gross pay are different, base wage rate does not include any additional compensation. The base wage rate is the minimum amount that an employee is paid. Gross salary includes additional compensation like bonuses, overtime pay, incentive pay, and others. 

Is it possible for the base wage rate to be equal to gross salary? 

Yes, the base wage rate can be equal to the gross salary. Such a case will only happen if an employee is not paid any additional compensation, but is only paid the minimum base pay per pay period. Meaning, the employee is not paid any overtime, bonus, incentive, or any other compensation. 

Is the base wage rate equal to annual salary? 

Base wage rate and annual salary may be the same only if an employee does not earn anything on top of the base salary. In such a case, the employee is not entitled to earn any overtime, bonuses, or any other compensation during the year. 

However, when there is any form of additional compensation throughout the year, the annual salary will be significantly higher than the base wage rate. The annual salary also takes into account any benefits an employer gives employees. This includes medical, dental, and any life insurance premiums. 

What are the factors that affect base wage rate? 

Base wage rates are not equal, they vary across industries and professions. Generally, jobs requiring advanced education and skill sets have higher base wage rates compared with jobs that require more basic skills. However, the base wage rate cannot be below the federal or state minimum wage rate. The federal minimum wage as of 2020 is $7.25 per hour and this figure can also vary depending on the state. There are U.S. states that have set a minimum wage that is higher than the federal minimum wage. In such cases, the employer must pay that minimum wage if it is higher than the federal standard. 

The base wage rate is dependent on the agreement between the employer and employee. No matter the base wage rate an employee is offered, it cannot be lower than the minimum wage. 

The base wage rate is based on the cost of living, geographic location, required skills, and level of experience. 

How do you compute base wage rate?

In essence, the base wage rate is not something that is calculated or computed per se. There is no formula for it because it is dependent on the employment contract. For payroll purposes, the base wage rate is multiplied by the total number of hours that the employee rendered work. 

Examples:

Victoria’s base wage rate is the federal minimum wage. She works 40 hours per week. Her base pay for the two-week pay period is computed by multiplying the base wage rate which is $7.25 by 80 hours (2 weeks).

                                                                                   $7.25 × 80 = $580

Patrick has recently been hired as a full-time employee for a recruitment firm. He will work 40 hours per week. His employer agreed to pay him $20 an hour with bonuses and incentives. For Patrick’s two-week base pay, it is calculated by multiplying his hourly rate by 80 hours (2 weeks). Remember that base pay does not include any additional compensation so will not take into account the incentives and bonuses. 

                                                                                   $20 × 80 = $1,600

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