Basic salary and gross salary are commonly used terms in the workplace, but they refer to distinct concepts. It is crucial for both employees and employers to understand the difference between the two.
What is Basic Salary?
Basic salary is an essential part of an employee’s compensation package, as it forms the foundation for determining other aspects of the employee’s pay. For example, an employee’s basic salary may be used to calculate their overtime pay or eligibility for certain benefits, such as health insurance or retirement plans. Basic salary is also a benchmark for determining an employee’s pay increases or promotions.
What is Gross Salary?
Gross salary is the most common term used to define the total compensation package of an employee. It’s often used as the benchmark for determining an employee’s salary. In most cases, the gross salary is the starting point for determining the employee’s tax liability, social security contributions, and other deductions.
Differences Between Basic Salary and Gross Salary
Here are three key differences between basic salary and gross salary:
1. Basic Salary Only Includes the Fixed Amount of Money That an Employee is Paid
The basic salary is the foundation of an employee’s compensation package, representing the fixed and regular amount paid for their work. It does not include additional benefits such as bonuses, commissions, or other incentives. On the other hand, gross salary includes the basic salary and all additional forms of compensation or benefits, providing a more comprehensive view of an employee’s total compensation package.
2. Basic Salary is Used as a Benchmark, while Gross Salary Used as A Reference
Basic salary is often used as a benchmark for determining an employee’s salary increases or promotions. It is also a starting point for calculating an employee’s gross salary. Meanwhile, gross salary is often used as a reference point for comparing the compensation of employees across different industries and positions.
How to Calculate Basic and Gross Salary
Calculating an employee’s basic and gross salary involves considering various factors such as job title, experience, qualifications, and any additional benefits or bonuses they may receive. Here are some examples:
1. How to Calculate Basic Salary
To calculate basic salary, you typically start with the employee’s job title, experience, and qualifications. An employee’s experience and qualifications, such as education and certifications, may also be considered. For example, an employee’s basic salary may be based on their job title, with higher-level positions having a higher basic salary.
An employee has the job title of “customer service representative” job title and three years of field experience. With that data, the company decides to give that employee a basic salary of $30,000 per year.
2. How to Calculate Gross Salary
To calculate an employee’s gross salary, you add their basic salary to any additional benefits or bonuses they may receive. These may include things like commissions, overtime pay, and other incentives. For example, if an employee gets a 5% commission on all sales they make, this would be added to their basic salary to calculate their gross pay.
An employee has the title of “marketing specialist” and five years of experience. Their basic salary is $50,000 annually, and a bonus of $2,500 annually. Their gross salary is $52,500 ($50,000 basic salary + $2,500 bonus).
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