Designing Base Pay

Editor's Note: Consider total rewards when designing minimum employee compensation in a competitive marketplace.

Marta MoakleyOverview: Base pay is an employee's initial pay, absent any incentive payments or merit increases. Nonexempt employees have a base hourly rate of pay. Exempt employees have a base salary.

When designing base pay, employers should consider the total rewards that would be available to an employee, including incentive compensation and benefits packages. Designing base pay that is markedly low within the employer's market sector can adversely affect overall recruitment and retention rates. However, employers may choose to design a compensation system that is comparatively low with respect to base pay, yet emphasizes bonuses and other compensation that is directly linked to top performance.

Trends: When designing base pay, employers always need to stay abreast of fluctuations in the minimum wage rates of particular states. Failing to comply with minimum wage requirements will expose an employer to penalties. In addition to greater liability risks to an employer, failing to comply with any base pay obligations may result in increased employee turnover and any attendant costs.

Marta Moakley, J.D., Legal Editor

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HR guidance on important considerations when designing base pay.