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The base salary explained: a guide to understanding your pay packet

Get to know the details of your pay packet with these financial definitions.

5 min read

Without understanding financial jargon, it’s difficult to calculate how much you’ll earn from a new role. To start building financial know-how and navigate your pay packet like a pro, let’s begin by explaining the definition of a base salary.

What is a base salary?

A base salary is the minimum amount you can expect to earn in exchange for your time or services. This is the amount earned before benefits, bonuses, or compensation is added. Base salaries are set at either an hourly rate or as weekly, monthly, or annual income.

If agreed in your contract of employment, your base salary will remain consistent each payday (aside from pay-rises, promotions, or annual inflation). However, there is a key difference between salaried employees and hourly-rate employees.

Salaried employees vs. hourly-rate employees

A salaried employee is offered a base salary, usually annually, and is expected to work for a set number of hours per week. Working hours aren’t usually monitored explicitly and are set around 35-40 hours per week. Each month, the payment is the same.

Depending on your employer, there may or may not be agreements for overtime. Some companies offer “time off in lieu,” rewarding overtime for additional paid time off. As a salaried employee, it can be difficult to track hours as an extra project here or there, adding a few hours extra a week, can easily go uncompensated.

Conversely, hourly employees monitor each and every hour worked and pay is based on the number of hours worked. This is more likely in industries requiring shift work, such as hospitality or customer service. Hourly-rate employees are able to charge overtime for hours worked over the specified agreement, or for working on evenings, weekends, or bank holidays.

For example, in the UK, zero-hour contracts sparked controversy due to fears of exploiting low-paid workers. These contracts, due to no minimum working hours, often favor employers much more than employees, allowing them to hire staff at short notice, or offer no work at all. Due to legislation, countries like Germany have restrictions on the minimum number of hours specified in contracts.

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Gross income and net income

The two other key financial terms for understanding job earnings are gross income and net income. Gross income is the amount earned based on your base salary and additional financial bonuses. Net income is the amount left once relevant deductions have been made (such as tax and health insurance).

Gross income is a strong indicator of the rewards offered for a certain role, but the term only applies to financial benefits. Many jobs offer benefits outside of financial rewards. All elements combined—including your base salary, gross income, and other bonuses—create what is known as a compensation package.

Compensation packages explained

A compensation package is an overall break-down of all benefits and income offered by your employer. When assessing the suitability of a new role (or current employment) it’s worth considering the entire compensation package, as well as the base salary. Typical benefits include:

  • Paid holiday
  • Sick leave
  • Health insurance
  • Stocks or shares
  • Pension plans
  • Bonuses

Different types of bonuses

There are many types of bonuses that can boost your income. Common examples include:

  • Sales commission: A percentage cut of sales you successfully make.
  • Incentive bonus: Money paid for reaching certain goals and targets.
  • Sign-on bonus: A lump sum received when starting the role.
  • Referral bonus: Money paid for referring someone you know for another role in the same company.
  • Gift: Such as tickets to concerts or gift vouchers rewarded for hard work or consistency.
  • Profit sharing: offering employees a percentage of any profit the company makes overall.

Benefits aren’t exclusively financial. In fact, certain additional benefits could have huge value away from direct monetary payments.

Other benefits offered to employees

Companies are increasingly caring for employees wellbeing and mental health, with job offers potentially including attractive wellness plans, from discounted therapy or coaching, to free gym-memberships.

The value of such benefits adds to quality of life, away from office hours. Assessing benefits outside of direct cash compensation is worthwhile; for example, a job may offer a lower base salary but allow for flexible working hours and remote work.

Comparing the market

With this in mind and clarity around additional benefits, you’ll be better positioned to fully understand your worth—and find a suitable role. Last but not least, once clear on your salary, it helps to compare your value against the current market.

Minimum wages across Europe

The majority of nations in the EU have legislation ensuring a minimum base salary; known as the minimum wage. Any employer paying less than the minimum wage in these countries is in effect breaking the law. Minimum amounts vary from country to country, depending on cost of living and other factors. According to Eurostat, minimum wages for a typical 40-hour week are:

  • Germany: €1,557 (fixed at an hourly rate of €9.19)
  • Spain: €1,050
  • France: €1,521.22 (fixed at an hourly rate of €10.03)
  • UK: £1,357 (fixed at an hourly rate of £8.21)

Certain nations, including Italy, Denmark, and Sweden, have no legal minimum wage. As there’s no legal protection on minimum salary, it pays to have insight on average salaries to ensure you’re paid competitively.

Average salaries across Europe

When searching for a new job or negotiating to raise your current base salary, it helps to know competitive salaries in your country of work. For a general overview, average gross salaries in European capitals, reported by Numbeo, are:

  • Berlin: €2,421.64
  • Madrid: €1,790.21
  • Paris: €2,380.54
  • Rome: €1,577.48
  • London: €2,852.40

Average salaries can be further categorized into average base salaries for specific job sectors. When comparing to these totals, take into consideration your experience, duration in the role, and any compensation packages offered. Ultimately, the more you understand your pay packet, the more empowered you are to earn what you truly deserve.

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Your money at N26

Understanding financial terms is the first step in better money management. The next step is controlling your finances. Fortunately, the free N26 bank account offers automatic categorization to track your spending and provide a clear overview of your finances. With this, you can keep an eye on your monthly pay packet and monitor your spending—all you need is your smartphone.

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