For businesses, it is crucial to clearly state base salary on employment contracts, so the employer and employee both share the same understanding of expectations for their roles. This salary is the annual monetary amount for employees who are engaged in an employment contract.
What is included in Base Salary?
A base salary is a fixed monetary sum provided to employees for work completed throughout the term of their employment contract. A base salary paid to an employee is not dependent on the satisfaction of a performance condition.
Enterprise agreements are used to determine the base rate of pay for employees. This amount must be no less than the minimum wage, as regulated by the Fair Work Act 2009 (Cth). Currently, the minimum wage is $20.33 per hour or $772.60 per 38-hour week.
However, most industries are covered by an award. These set minimum wages and standards for employees. Employees should check any relevant awards that may apply to their industry before engaging in an employment contract.
What is not included in Base Salary?
A base salary does not include any benefits, bonuses, compensations or allowances. Other forms of payment, such as overtime rates and taxes, are not part of base salary.
There are certain benefits, such as sick leave, annual leave and superannuation that all full-time and part-time employees are legally entitled to.
A superannuation contribution is not included in base salary. A superannuation contribution is mandated by law for employees over the age of 18 (or earning over $450 per calendar month), and the contribution consists of 10% of your earnings in any pay period, paid to your elected superannuation fund. It is not dependent on an employee’s performance and is paid during the relevant period.
If employers wish to include additional incentives to employees for their performances, they should include these in addition to base salary or employment contract.
What are the benefits of Base Salary?
Providing employees with a base salary is essential to ensure your business complies with Fair Work legislation, National Employment Standards, and other applicable regulations.
Establishing a clear salary when beginning employment provides both employees and employers with security. Employees can expect a consistent stream of revenue, which is not based entirely on performance. Depending on the particular employment agreement, a defined salary gives employers a clear amount required to be paid before superannuation benefits and taxes are deducted, and assists with payroll duties.
Whilst employers are unable to reduce an employees base salary due to poor performance, consistent poor performance can lead to a breach of employment contract. In these instances, employment contracts may be reviewed, with the potential to be terminated.
Base salary is important for employers to ensure compliance with workplace regulations, and for employees to understand the minimum expectations of their employment contract.
Salary arrangements should be recorded in writing. This should identify which elements are included as a starting salary or other entitlements. Employers should keep a copy of the signed agreement, and encourage employees to keep a copy.
Business owners who are confused as to the base salary requirements should seek legal advice before drafting employment contracts. Business Kitz can offer you a free initial consult, or alternatively, you can sign up to our Subscription service which offers 200+ employment documents for the low cost of $14 per user per month. Click here to find out more.