Differences Between Total Compensation and Base Salary

Total compensation refers to the entirety of benefit offerings that an employer provides to their employees in exchange for work. In other words, total compensation is your base salary plus other benefits. The benefits included in a total compensation package vary depending on your position and employer. Before accepting a position, make sure you know the benefits included in your compensation package so you can make a more strategic decision about your future employment. Let’s take a look at some common benefits you can find included in total compensation:

Salary

Salary is the amount of money that your employer will pay you for doing your job. This amount varies depending on several factors, including your education, experience, position, geographical location, and the company you work for.

Paid vacation, holidays, and sick days

There are days when you don’t go to work but you still earn money. For instance, many companies pay you for Thanksgiving or Christmas day even though you have these days off. In addition, you can use sick days when you are feeling ill and use vacation days at your leisure. Taking a paid vacation, holiday, or sick day allows you to take time off without hurting your paycheck.

Learn more: 7 Reasons You Need to Schedule Vacation Time Now

Health care insurance

Health care insurance is a form of insurance coverage that usually pays for the prescription drugs, surgical, medical, and sometimes dental expenses you incur. It reimburses the expenses you incurred from injury or illness or pays the health care provider directly. It’s usually included in employer benefit packages to attract quality employees, with premiums partially paid by the employer but usually also deducted from the paychecks of employees. The cost of health care insurance premiums is tax-deductible for the payer, and the benefits received are often tax-free.

401(K) or retirement savings plan

A 401(k) is a retirement savings plan designed to give you an income when you retire. It allows you to contribute a portion of your salary to your retirement. While a 401(k) is not required, many employers offer a plan as soon as you begin working. Other employers have a waiting period — which can take up to a year — until they invite you to start a 401(k). Make sure to reach out to your HR representative or check your employee handbook to learn more about your employer’s 401(k) policies.

Learn more: 5 Ways You’re Saving for Retirement Wrong

Maternity leave

Maternity leave refers to the time period when mothers take leave from work after they give birth to a child. To be eligible for maternity leave, you need to give notice of your pregnancy in a particular form and must indicate when you want your leave to begin. In some cases, maternity leave can begin earlier than planned (e.g., if you give birth prematurely or when you are ill due to a pregnancy-related reason)

Learn more: Companies Offering Great Maternity Benefits

Disability insurance

If you become unable to work due to illness or injury, you can take advantage of short-term disability insurance. This type of insurance allows you to receive a certain percentage of your income until you’re able to return to work. Long-term disability insurance protects you by making sure you will not lose your income if you become unable to work for a long period of time. This insurance is one of the most valuable benefits of a total compensation package.

Other benefits

In addition to these common benefits, some companies provide additional benefits in their total compensation packages to attract quality employees. Other benefits employers may provide include:

• Subsidized education or training: Some employers offer to pay for training to help you grow or improve your skills. This allows you to gain more knowledge and skills to use on the job while you maintain your current position.
• Telecommuting: Some employers may allow you to work from home. This promotes a flexible work schedule and can help you attain a greater work-life balance.
• On-site child care: Some companies provide an on-site childcare center where you can drop off your child during work hours. This avoids you having to pay for a nanny, babysitter, or daycare.

When employers provide benefits in addition to base pay, they may issue annual total compensation statements that indicate the total amount paid to you. You will usually know what you are paid as the base pay, but you may not know the dollar value of the additional benefits you’ll receive. This type of statement can help you understand what you receive in total compensation. Some employers use a total compensation statement as a retention tool to help you understand your value and help you feel appreciated for your contribution. If you are looking elsewhere for employment, you might base your salary comparisons on base pay only, without realizing how many additional benefits you are receiving and the value of those benefits. When comparing jobs, it’s important to compare the total compensation package instead of just the base salary.

Base salary refers to the initial rate of compensation that you get as an employee in exchange for performing your job’s duties and responsibilities. A job posting that promises a base salary of $25 per hour, for example, means that you would earn a salary of $25 per hour worked, or $200 for an eight-hour day. Base salary doesn’t include any additional lump-sum compensation, including bonuses or overtime pay, health insurance, stock options, sales commissions, or other types of benefits. Calculating your base salary is fairly easy. For example, if your yearly salary, minus commissions, tips, and bonuses, is $40,000 and you work 2050 hours per year, your base salary is about $19.51 an hour.

Learn more: How to Negotiate Your Salary

Types of base salary

Employers usually calculate and administer base salary using the following methods:

• Hourly: An hourly base salary refers to the payment you receive for every hour you work. For instance, if your base salary is $10 per hour and you worked six hours in a day, you can multiply your hours worked and wage to calculate your daily income.
• Weekly: For a weekly base salary, you earn a fixed amount of money for the service you render every week. For example, a company may pay you $600 per week for your role.
• Monthly: A monthly base salary refers to the income a company pays you for an entire month of work.
• Annual: Annual base compensation is usually for a salaried employee who receives a fixed salary for an entire year. For example, you may earn $80,000 per year.

Learn more: How to Figure Out Your Salary in Your Next Job

Factors affecting base salary

Here are a few factors that can affect base salary:

• Years of experience: More experience usually results in a higher base salary — up to a point. Similarly, if the job calls for an individual with five years of experience in a particular career and you don’t satisfy those requirements, your base salary may be on the lower end.
• Education: The match between your educational level and what’s typically required for your position affects your base salary. Plus, the quality of education can influence base salary. Getting a degree from a top program usually has a positive influence on base salary, while completing a degree from a university or college that’s considered weak in a particular industry may reduce your earning potential.
• Performance reviews: Since most employers base their salary decisions at least partly on your work performance, this is an important factor when being considered for a promotion or pay raise. Even when you’re applying for a new job, your performance review may be important to your prospective employer, as it provides them with a more complete picture of your capabilities.
• Professional certifications and associations: Memberships and certifications in trade associations or professional organizations can have a positive effect on base pay. However, if a job requires a certification you don’t have, your base pay might be set at the lower end of the pay range.
• Shift differentials: In certain occupations, you may be expected to perform your duties during less favorable shift times. However, you may be paid a premium due to the higher physical and social costs involved in working outside of regular working hours.
• Hazardous working conditions: In certain occupations, you are expected to perform your duties under dangerous working conditions, which can include anything from walking a police beat in a dangerous area of town to handling harmful chemicals in a laboratory.

Whether you are applying for a job or trying to negotiate a salary increase at your current position, understanding the differences between total compensation and base salary is critical. If you want to know how to negotiate your total compensation or salary, read this guide.