What is Base Pay? How to Calculate It and Get It Right

Figuring out how much to pay your team shouldn’t be a hassle. Whether you're hiring your first server or setting rates for your tenth manager, base pay is where everything starts. It's the number on every offer letter, the foundation of every paycheck, and the baseline for every raise conversation.

Base pay is simple: it's the guaranteed rate you agree to pay someone for their work. No bonuses. No tips. No overtime. Just the guaranteed rate that shows up week after week. Get it right, and you'll budget smarter, hire better, and keep your team longer.

TL;DR: Base pay

What is base pay? The fixed hourly rate or annual salary you agree to pay someone before any extras. No bonuses, no tips, no overtime, no benefits

What does base pay include? Just the hourly wage or annual salary. Everything else (overtime, commissions, bonuses, tips, health insurance, PTO) is extra

Is base pay before or after taxes? Before taxes. Base pay is calculated before any deductions come out—it's similar to gross pay, but gross pay includes overtime, bonuses, and other earnings on top of base pay

How do you calculate base pay? For hourly workers: hours per week × 52 weeks × hourly rate = annual base pay. For salaried workers: annual salary ÷ pay periods per year = base pay per paycheck

Common base pay mistakes: Confusing it with total compensation when hiring, miscalculating overtime (it's 1.5× base rate, not gross pay), paying inconsistent rates for the same role, and setting rates below market

What is base pay?

Base pay is the guaranteed rate you agree to pay someone for their work. Nothing more, nothing less.

It's expressed as either an hourly rate (like $18/hour for a server) or an annual salary (like $52,000/year for a manager). This is the number that goes in the offer letter, shows up on every paycheck, and forms the baseline for every raise conversation you'll ever have.

Think of it as your foundation. Everything else—overtime, bonuses, commissions, benefits—gets built on top of that base rate. Your team can earn more than their base pay in any given period, but they'll never earn less (assuming they work their scheduled hours).

Getting base pay right from the start saves you from awkward conversations later. When you're clear about wages upfront, your team knows exactly what to expect, and you can build accurate schedules that match your labor budget.

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When is base pay determined?

Base pay gets set at a few key moments:

During hiring: You and your new hire agree on base pay before they start. It goes in the offer letter, the employment contract, and any other paperwork they sign before day one.

At annual reviews: Base pay typically increases through merit raises, cost-of-living adjustments, or market corrections. Most small businesses review pay rates once a year.

With promotions: Moving from line cook to sous chef or from server to shift lead usually means a bump in base pay to reflect new responsibilities.

For market adjustments: Sometimes you need to raise base pay across the board to stay competitive. If everyone around you is paying $20/hour for cooks and you're stuck at $16, you'll lose people fast.

Who gets base pay?

Almost everyone. Whether you're running a coffee shop, a dental office, or a retail store, your team members have base pay. Servers earning $12/hour base plus tips. Retail workers at $17/hour. Assistant managers on $45,000 salaries. General managers at $68,000.

According to the U.S. Bureau of Labor Statistics, 56% of American workers are paid hourly, and even salaried employees have a base rate that determines their paycheck. If someone works for you, they have base pay.

Base pay vs gross pay vs net pay

These three terms trip everyone up. Here's how they're different.

• Base pay is your fixed rate. The hourly wage or annual salary you agreed to when you got hired. Nothing added, nothing subtracted.
• Gross pay is everything you earn before taxes come out. Base pay plus overtime plus bonuses plus tips plus commissions. It's your total earnings for the pay period.
• Net pay is what actually hits your bank account. Gross pay minus taxes minus deductions. Your take-home.

The breakdown:

• Base pay: Your fixed rate. The hourly wage or annual salary only (example: $20/hour or $50,000/year)
• Gross pay: Total before deductions. The base + overtime + bonuses + tips (example: $1,400 = $800 base + $300 overtime + $300 tips)
• Net pay: Your take-home. So, gross minus taxes and deductions (example: $1,400 gross - $280 taxes = $1,120 net)

Is base pay before taxes?

Yes. Base pay is always calculated before any taxes or deductions come out. When a job posts "$18/hour base pay," that's pre-tax.

Is base pay the same as gross pay?

No. Base pay is just your fixed rate. Gross pay is your total earnings before taxes—which usually includes base pay plus extras. Your gross pay in any given period is typically higher than your base pay if you work overtime, earn bonuses, or get tips. But your base pay rate stays the same.

What's included (and not included) in base pay?

Let's make this crystal clear.

Base pay includes:

• Your hourly wage or annual salary
• That's it!

Base pay does NOT include:

Extra earnings:

• Overtime pay (even though it's calculated from your base rate)
• Bonuses (quarterly, annual, performance-based, sign-on)
• Commissions or sales incentives
• Tips and gratuities
• Shift differentials (extra pay for nights, weekends, holidays)

Benefits and perks:

• Health insurance premiums (even if your employer pays them)
• Retirement contributions (401k match, pension)
• Paid time off (vacation days, sick days, holidays)
• Stock options or equity

Why this matters

When you see a job posting that says "Base pay: $16/hour, total compensation up to $25/hour with tips," understand what's guaranteed versus what's variable.

The $16 is guaranteed. You'll earn that no matter what. The $25 depends on how busy the restaurant is, how good your service is, and whether customers tip well. Some weeks you'll hit $25/hour total. Other weeks you might not.

Base pay is the floor. Everything else is the ceiling.

Small business hiring tip

Be transparent about what's base versus what's extra when you're making offers.

• Don't say: "We pay $50,000."
• Say: "Your base pay is $42,000, with up to $8,000 in performance bonuses based on quarterly goals."

The first version sounds good until your new hire realizes $8,000 of it is conditional. The second version sets clear expectations from day one. People appreciate honesty. They'll trust you more when you're upfront about how compensation actually works.

How to calculate base pay (with examples)

Base pay calculations are straightforward once you know the formulas.

For hourly employees

Formula: Hours per week × Weeks per year × Hourly rate = Annual base pay

Example 1: Part-time barista

• Works 25 hours/week
• Earns $15/hour base pay
• 25 × 52 × $15 = $19,500 annual base pay

Example 2: Full-time line cook

• Works 40 hours/week
• Earns $18/hour base pay
• 40 × 52 × $18 = $37,440 annual base pay

For salaried employees

Formula: Annual salary ÷ Pay periods per year = Base pay per paycheck

Example 3: Assistant manager (bi-weekly pay)

• Annual salary: $48,000
• Pay periods: 26 (every two weeks)
• $48,000 ÷ 26 = $1,846.15 base pay per paycheck

Example 4: General manager (semi-monthly pay)

• Annual salary: $65,000
• Pay periods: 24 (twice per month)
• $65,000 ÷ 24 = $2,708.33 base pay per paycheck

Quick conversion trick

Want to know what an hourly rate looks like annually? Multiply by 2,080 (the number of full-time work hours in a year).

• $16/hour × 2,080 = $33,280/year
• $22/hour × 2,080 = $45,760/year
• $28/hour × 2,080 = $58,240/year

Calculating base pay for inconsistent hours

Some weeks your team works more hours. Some weeks they work less. Base pay stays the same—you just multiply by actual hours worked.

Example: Server with a $15/hour base pay rate

• Week 1: 32 hours worked
• Week 2: 10 hours worked
• ($15 × 32 = $480) + ($15 × 10 = $150) = $630 base pay for that bi-weekly period

No overtime in this example, so it's all base pay. Simple math.

Tools for small businesses

Manual calculations get tedious when you've got 10+ employees with different rates, varying schedules, and overtime to track.

Time clocks like Homebase automatically calculate base pay and overtime for every team member. Hours get tracked, rates get applied, and the math happens in the background. No spreadsheets. No calculator. No mistakes.

What determines your base pay rate?

Base pay doesn't come out of thin air. Here's what determines the rates you set.

Start with market research

Don't guess. Look up what others are paying for similar roles in your area.

Check the Bureau of Labor Statistics for regional wage data by job type. Browse job boards like Indeed, Glassdoor, and LinkedIn to see what competitors are posting. Ask other business owners in your industry what they're paying.

Know your legal minimums

Federal minimum wage is the floor, but many states and cities set higher minimums. You must pay whichever is highest—federal, state, or local.

Consider your budget

What can you actually afford based on revenue and profit margins? Base pay is your biggest fixed cost. Make sure the numbers work before you make offers.

Factor in total compensation

If you're offering great benefits, flexible schedules, or profit-sharing, you might offer slightly lower base pay and still compete. But don't go too far below market.

Build in flexibility

Consider offering a range like "$18-22/hour depending on experience." This lets you pay more for exceptional candidates without lowballing everyone else.

Review annually

Minimum wages increase. Markets shift. Competitors adjust their rates. Review your base pay at least once a year, even if you can't always give raises. Knowing where you stand helps you plan.

Small business reality check

You can't always match corporate base pay rates. That's okay.

Many people will accept slightly lower base pay for better schedules, more autonomy, a supportive team, and direct impact on the business. But don't go too far below market—$2-3/hour under is manageable. $5-8/hour under and you'll lose good people constantly.

Be honest about what you can offer. Emphasize what you do well. And stay aware of what competitors are paying so you're not caught off guard when someone leaves for better pay.

Base pay for hourly vs salaried employees

The way base pay works depends on whether you're hourly or salaried.

Hourly employees

Base pay is expressed as dollars per hour (like $19/hour). You're paid your hourly rate times actual hours worked. Income varies—work 35 hours one week and 28 the next, and your paycheck changes. You're entitled to overtime at 1.5× your base rate for hours over 40 per week.

Typical roles: Servers, retail workers, baristas, cooks, shift workers.

Salaried employees

Base pay is expressed as dollars per year (like $55,000/year). You're paid a fixed amount every paycheck, regardless of hours worked. Usually no overtime pay.

Typical roles: Managers, assistant managers, supervisors, executives.

The FLSA factor

The Fair Labor Standards Act sets the rules for who gets paid hourly versus salary.

• Non-exempt (hourly): Must earn at least minimum wage. Must get overtime pay for hours over 40 per week. Usually perform routine or manual tasks.
• Exempt (salaried): Must earn at least $684/week ($35,568/year). Must perform executive, professional, or administrative duties with independent judgment.

Misclassifying someone is expensive. If you pay someone a salary to avoid overtime but they don't meet exemption requirements, you could owe back wages, penalties, and fines. When in doubt, consult an HR professional or labor attorney.

Which is better for small businesses?

• Hourly works best when: Schedules vary week to week, you need part-time flexibility, work volume fluctuates seasonally, or you want precise labor cost control.
• Salary works best when: The role requires consistent 40+ hour weeks, you need predictable leadership presence, or the position involves management work.

Most small businesses with hourly teams—restaurants, retail, hospitality—stick with hourly base pay rates. It's simpler to manage when schedules change and more flexible for team members balancing school or second jobs.

Salaries make sense for managers and key leadership roles where you need someone there regardless of how busy you are.

Common base pay mistakes small businesses make

Getting base pay wrong costs you time, money, and good people. Here are the mistakes we see most often.

Mistake #1: Confusing base pay with total compensation

Don't tell candidates "We pay $60,000" when $48,000 is base and $12,000 is a potential bonus.

Say it clearly: "Your base pay is $48,000, with up to $12,000 in annual bonuses based on performance."

One version sounds good until reality hits. The other sets honest expectations from day one.

Mistake #2: Forgetting about minimum wage increases

State and local minimum wages change. Often.

If you set base pay at $15/hour and your state minimum jumps to $16, you're suddenly out of compliance. Audit your base pay rates at least once a year and adjust before new minimums kick in.

Mistake #3: Paying different rates for the same role without justification

If two line cooks with similar experience are doing the same job, they should earn similar base pay.

Paying one $17/hour and another $22/hour for no clear reason (experience, certifications, performance) creates resentment and potential legal issues around pay equity. Document why pay differs when it does.

Mistake #4: Miscalculating overtime from the wrong rate

Overtime is 1.5× your base hourly rate. Not your gross pay. Not your pay including shift differentials.

If someone's base pay is $16/hour and they get a $2/hour shift differential for nights, their overtime rate is still $24/hour (1.5 × $16), not $27/hour (1.5 × $18).

Get this wrong and you'll either underpay (and face penalties) or overpay (and hurt your margins).

How to manage base pay for your team

Managing base pay gets complicated fast when you're juggling multiple team members.

Different rates for different roles. Raises and promotions that change rates over time. Overtime that needs to be calculated at 1.5 x each person's base rate. Multi-location teams with different state minimum wages. It adds up quickly.

What you need to track

Good base pay management means keeping accurate records of:

• Each team member's current base pay rate: Not what they made six months ago. What they make right now.
• Overtime calculations: Every hour over 40 gets paid at 1.5× that person's specific base rate. Not a flat rate. Their rate.
• Multiple pay rates for cross-trained employees: If someone works as both a server ($15/hour) and a bartender ($18/hour), you need to track which hours were worked at which rate.
• State and local compliance: Different locations have different minimum wages. If you've got team members in multiple cities or states, you need to track who's subject to which laws.

What good tools should do

Payroll software worth using handles all of this automatically:

• Stores each employee's base pay rate and updates it when raises happen
• Calculates overtime correctly at 1.5 x each person's base rate
• Tracks multiple pay rates for employees who work different positions
• Syncs time clock data with payroll so hours and rates match perfectly
• Flags compliance issues before they become problems
• Generates reports showing labor costs by role, location, or pay period

How Homebase helps

Homebase tracks base pay for your entire team and does the math automatically.

Time clocks capture actual hours worked. Payroll applies the right base rate to each employee. Overtime gets calculated at 1.5× their base rate without you touching a calculator. And everything syncs in real-time so you always know what labor is costing you.

No spreadsheets. No manual entry. No mistakes.

One of our customers put it this way: "Before Homebase I was manually tallying up my team's work hours and entering them into payroll, crossing my fingers I hadn't made any mistakes. Now our entire team logs in and out quickly and easily with the Homebase app, and all I have to do is send their hours to my payroll program with the click of a button."

When you've got time clocks handling hours and payroll handling rates, you can focus on running your business instead of double-checking math.

Ready to simplify base pay management? Try Homebase free for 14 days—no credit card required.

FAQ about base pay

Is base pay the same as annual salary?

Not always. Base pay can refer to either your hourly rate or annual salary, depending on whether you're paid hourly or salaried. For hourly workers, it's dollars per hour ($18/hour). For salaried workers, it's dollars per year ($50,000/year).

Does base pay include overtime?

No. Overtime is extra pay on top of base pay, calculated at 1.5 times your base hourly rate for hours over 40 per week. If your base pay is $20/hour, overtime is $30/hour. Overtime gets added to calculate your gross pay.

What's minimum base pay?

The lowest hourly rate or salary an employer can legally pay, determined by federal, state, or local minimum wage laws—whichever is highest. The federal minimum is $7.25/hour, but many states and cities require higher minimums. Check what applies in your location.

Is base pay before or after taxes?

Before. Base pay is calculated before any taxes or deductions. When you see "$18/hour base pay" in a job posting, that's pre-tax. Your take-home (net pay) will be lower after taxes and deductions.

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