Basic Pay

Meaning & Definition

Basic pay is composed of the fixed salary component of an employee (also known as a base salary or hourly rate) before adding any other forms of compensation (such as bonuses, overtime, etc). This is what forms the basis for all other aspects of the Employee’s salary structure and how they will be included in Payroll, e.g., through the calculation of the provident fund, gratuity, and various allowances associated with payroll processing.

Important aspects of Basic Pay

• Constitutes the foundation of the structure for salaries of employees.
• Serves as the basis for calculating employer and employee statutory contributions and benefit amounts.
• Affects both the employee’s actual within the payroll system and their benefits over time.
• Provides for a level of continuity and transparency with regard to employee payroll practices.
• Establishes a standard against which salary increase awards and revisions will be evaluated.

Regulatory & Policy Alignment

• The organisation’s salary structure and compensation policy define basic pay. 
• Basic pay is commonly used to calculate statutory contributions including provident fund, gratuities etc. 
• The payroll process must adhere to both wage definitions applicable to employees and company’s guidelines for internal compensation. 
• The policy of reviewing the payroll process on a regular basis assists in defining Fairness.
• The policy of reviewing on a regular basis ensures that the payroll process is compliant and prepared for compliance.

For more info, visit: Payroll Software