what is the definition of Base Pay in finance?

Definition

Base pay is a basic salary paid to an employee with the exclusion of bonuses, raises, or any other compensations. It is the agreed pay/ standard rate an employee receives at the end of every day, week, or month. Any other increase that comes from the employer as some form of bonus or raise will not be regarded as base salary.

Base Pay Explained

When a new employee gets hired, the human resources (HR) manager or representative quotes and agrees with the new employee on the base pay. The base pay becomes the minimum amount of income the employee will receive at the end of a specified time. Along the way, the employee may earn additional money by gaining incentive bonuses or doing special assignments. Therefore, the base pay excludes housing allowance, extra-work pays, extra shift pays, and all other compensations.

For example, if John’s base pay is $300 per month and in the course of the month, John earns some bonuses or compensations of probably $100 extra. John’s take-home for that month would be $400. But, if there are no bonuses or compensations for John in a particular month, he still goes home with $300. All incentives pay, special assignments pay, extra shift pays, etc. are all excluded from the base pay.

There are certain factors that can affect an employee’s base pay. In the case of a promotion, the base pay increases; increased cost of living can also cause an increase in base pay. While a job demotion can cause a decrease in base pay.