Basic salary refers to the agreed-upon amount of money an employee earns before any extras are added or deductions are made. They are given in exchange for labor done by an employee or staff of an organization over a period of time. As the name implies, it is the foundation of an employee’s pay and it is usually fixed.
A basic salary is quite different from the gross and net salaries of an employee. The gross salary of an employee is the total amount of money paid after additions have been made to the basic pay. Such additions could be reimbursement, incentives, bonuses, etc. Net salary, on the other hand, is the total amount of money an employee receives after deductions have been made. Those deductions could be tax, insurance, loan, etc.
However, there are certain factors that affect the basic salary of an employee in any organization. Some of those factors include:
Location of the Company: Basic salary differs among countries and regions. Countries and regions with a better economy will likely pay more basic salaries than countries with an unstable economy.
Competition: Some organizations will likely pay a higher basic salary if they want to attract highly skilled and qualified candidates into their company.
Education and Skill: Every HR manager will most likely pay the skilled and educated employee more basic salary than the unskilled. This is because their skill and expertise can easily be converted to a tangible value for the company, which a manager will not hesitate to pay for.
Minimum Wage: The amount of money set by the government as minimum wage also affects the basic salary a company can pay any of its employees.
Negotiating Ability of a Candidate: Any candidate that can properly negotiate his basic salary, stands a chance of earning even more than his colleagues at the same level.
One of the major challenges that can arise for managers in working with a basic salary for their employees is the fact that it can lead to poor retention of employees. Basic salaries are usually fixed, and in cases where the employees are not paid well, attrition or high employee turnover can occur. To manage basic salary properly and retain great employers, here are a few measures that can be put in place.
Basic salaries for all employees should be fair and equitable so that even if employees compare their salaries with their colleagues in other organizations, it won’t be unfair.
Basic salaries should be as flexible as possible and can also be reviewed often. This can help employees remain motivated and loyal, knowing that there is room for financial growth within the organization.
Basic pay should be reviewed in line with the cost of living and the demands of the labor market.
To conclude, when it comes to managing basic salaries, a few key principles can make a significant difference:
Fairness and Equity: Ensuring that basic salaries are fair and equitable across the board is crucial. This prevents feelings of inequity among employees and fosters a positive work environment.
Flexibility for Growth: Introducing flexibility in basic salary structures allows room for employees to grow financially as they gain experience and skills. This flexibility can be achieved through periodic reviews and adjustments.
Market Alignment: Regularly aligning basic salaries with industry standards and the cost of living ensures that employees' compensation remains competitive and motivating.
By adhering to these principles, organizations can navigate the challenges associated with basic salaries and foster an atmosphere of loyalty, motivation, and financial satisfaction among their workforce.
Join our happy subscribers
