Welcome to our comprehensive guide, 'What Is A Salary: Definitions and Terminology.' This blog is designed to be your definitive resource, cutting through the jargon and breaking down all things salary-related in a way that's easy to understand. Whether you're starting your first job, negotiating a pay rise, or just looking to understand your payslip better, we'll provide the knowledge you need to navigate the world of pay with confidence.
In the following sections, we'll explain key terms like gross salary, net salary, overtime, bonuses, and more. We'll clarify common misconceptions, highlight important legislation, and help you understand exactly what goes into the calculation of your salary. By the end, you'll not only know your wage from your salary, but you'll also understand how to make the most of what you earn. So let's dive in and demystify the complex world of salaries.
In this article for salaried employees and hourly employees, we delve into the following:
- What is salary sacrifice?
- What is a salary structure?
- What is holiday pay?
- What is sick leave and statutory sick pay?
- What is gardening leave?
- What is severance pay?
What Is A Salary?
A salary is a predetermined amount of money that an employee receives from an employer as compensation for their work. This fixed sum, typically agreed upon on an annual basis, provides the employee with a steady income, giving them financial stability and security. It is most common in non-manual or professional roles, where the emphasis is on completing tasks or projects rather than clocking in a set number of hours.
The amount of a salary can vary significantly based on factors such as the nature of the job, the level of responsibility, the industry, and the employee’s level of experience and qualifications. Salary also tends to reflect the expectations and demands of the specific job itself. For instance, a role that requires a high degree of skill, responsibility, or unusual working hours might come with a higher salary to compensate for these demands. If your goal is to gain a competitive advantage and earn the highest annual salary, we recommend reading our career advice, downloading one of our CV templates, and exploring the highest-paid jobs in the UK.
What Is Net Salary?
Net salary, often referred to as ‘take-home pay’, is the amount of money an employee receives after deductions have been taken into account. These deductions typically include tax, National Insurance contributions, pension contributions, and possibly others such as student loan repayments or healthcare plan contributions.
Your net salary is the actual amount that lands in your bank account after all these deductions. It’s the money you have available to cover your living expenses, savings, investments, and leisure activities. It’s essential to understand your net salary when planning your budget and financial commitments.
What Is Gross Salary?
Gross salary is the total income earned by an employee before any deductions like taxes, National Insurance contributions, and pension contributions are made. It’s the ‘headline’ figure you’ll see in your employment contract, representing the full amount of compensation you receive for your work.
While the gross salary might seem impressive, it’s important to understand that it’s not the amount you’ll have in hand at the end of the pay period. By understanding the difference between your gross and net salary, you can better manage your finances, set realistic budgets, and plan for your future.
Basic Salary Meaning
Basic salary refers to the minimum amount paid to an employee before any extras are added. It forms the core of an employee’s remuneration package and does not include bonuses, overtime, or any other potential compensation that employees receive from an employer.
This base salary is a fixed part of your compensation structure, and it typically constitutes the largest part of your total pay package. It’s essential because other elements, like certain bonuses, holiday entitlements, or pension contributions, are often calculated as a percentage of this basic pay.
What Is The Difference Between A Wage And Salary?
A wage refers to payment received on an hourly basis for services rendered, usually associated with manual or non-salaried jobs. Wages are paid based on the actual number of hours worked, so the total income can vary from week to week. This type of payment is common in part-time, casual, or shift-work roles.
On the other hand, a salary is a fixed amount paid to an employee, irrespective of the number of hours worked. This provides financial stability and predictability as the employee receives the same amount of money in each pay period. Salaried roles often come with expectations of completing a job or a set of tasks rather than working for a specific number of hours.
How To Get A Pay Rise
Negotiating a pay rise can be a daunting task, but with the right preparation, you can make a strong case. Start by doing thorough research. Understand your industry’s pay standards, assess your company’s financial health, and reflect on your contribution to the company. It’s crucial to quantify your achievements wherever possible. Make a list of your accomplishments that have benefited the company, such as increasing sales or improving processes.
When you feel ready, request a meeting with your manager. This meeting should be a formal one, separate from any regular catch-ups you have. Prepare a clear, concise presentation of your case, focussing on your accomplishments, additional responsibilities, and the value you add to the company. Remember to highlight how your work aligns with the company's goals.
Be sure to practice your delivery beforehand. Stay calm and professional during the conversation, even if it feels uncomfortable. If your request is denied, don't be disheartened. Ask for feedback and what you can do to increase your chances in the future. A pay rise negotiation is not just about getting an immediate increase, but it's also an important part of your ongoing career development and progression.
What Does DOE Mean?
DOE, an acronym standing for 'Dependent on Experience', is a term often seen in job advertisements. It signifies that the salary offered for a particular position may vary depending on the candidate's level of experience. In other words, candidates with more extensive experience or more advanced skills might command a higher salary than those at the beginning of their careers.
The use of 'DOE' gives companies the flexibility to attract a wider pool of candidates, from novices to seasoned professionals. However, for applicants, it can make it more challenging to understand what they might earn in that role. Therefore, it's always wise for potential candidates to clarify salary expectations during the interview process.
What Is An Average Salary?
An average salary refers to the mean salary earned by individuals within a particular job, industry, or geographic area. It's calculated by adding up all the salaries for a specific group and dividing the total by the number of salaries. It provides a useful benchmark for comparing salaries and understanding where an individual salary falls within the wider context.
However, keep in mind that 'average' doesn't always mean 'typical'. The average can be skewed by extremely high or low salaries, so it may not represent the most common salary in a given set. Looking at the median salary (the middle value when all salaries are listed in numerical order) may provide a more accurate picture of typical earnings in public sector.
What Is OTE?
OTE stands for 'On-Target Earnings'. This is a term often used in sales roles to illustrate the total potential earnings someone can expect if they meet their sales targets or goals. The OTE will typically consist of a basic salary plus a commission or bonus that's contingent on achieving certain performance metrics.
OTE offers a realistic idea of what you could earn in a role if you perform to expectations. However, it's important to remember that the additional earnings beyond your basic salary aren't guaranteed – they depend on your performance and the company hitting its targets.
What Is A Bonus?
A bonus is an additional amount of money given to an employee on top of their standard salary, typically as a reward for good performance or for meeting specific company targets. Bonuses can be a great motivational tool, providing a financial incentive for employees to exceed their regular duties or targets.
Bonuses can be awarded to individuals, teams, or even company-wide, and they can be given at regular intervals (such as end of the year or quarter) or on a discretionary basis. They can vary greatly in size, and while they are a welcome addition to an employee's income, they should be considered as a 'bonus' and not relied upon as guaranteed income.
Do You Pay Tax On A Bonus?
Yes, in the UK, bonuses are typically considered taxable income. This means they are subject to both income tax and National Insurance contributions, just like your regular salary. The tax is usually deducted from your bonus before it is paid to you, so the amount you receive in your bank account will be the post-tax amount.
However, how much tax you pay on your bonus can depend on the tax band you fall into. If receiving a bonus pushes your total income into a higher tax bracket, you may find that you're paying a higher rate of tax on at least part of your bonus. Always consider the potential tax implications when calculating the actual value of a bonus.
What Is Overtime?
Overtime refers to the additional hours that an employee works beyond their standard working hours or contracted hours. Depending on the terms of an employee's contract, these additional hours might be paid at a higher rate, often referred to as 'time and a half' or 'double time,' to provide incentive for employees to work beyond their usual schedule.
However, it's important to note that overtime rules can vary considerably by employer, industry, and even by job role. Some employees may not receive any additional pay for overtime, while others may receive compensatory time off, also known as 'comp time,' in lieu of monetary payment. Always refer to your employment contract or speak with your HR department for specific information.
What Is Take Home Pay?
Take home pay, also commonly known as 'net pay', is the amount of salary that an employee actually receives after taxes and other deductions are subtracted from their gross salary. These deductions can include income tax, National Insurance contributions, pension contributions, and possibly others like student loan repayments or private healthcare insurance contributions.
Understanding your take home pay is crucial for personal budgeting and financial planning. It’s the amount you actually have to spend on housing, food, transportation, savings, leisure activities, and other expenses. It’s essentially the money that a worker 'takes home' from their employment to cover their cost of living. Read our guide on How To Work Out Your Take Home Salary.
What Is Day Rate Pay?
Day rate pay refers to a method of payment where an individual is compensated based on a set rate for each day worked, rather than being paid a salary or hourly wage. It's common in certain industries like construction, consulting, or freelance work where work may not be consistent or is project-based.
A day rate provides a level of flexibility for both the employer and the worker. For the worker, it often allows for potential higher earnings if they can complete their work efficiently. For the employer, it offers a clear, upfront understanding of the cost for a day's work, aiding in budgeting and cost estimates.
Do You Pay Tax On Cash In Hand?
Yes, in the UK, 'cash in hand' income is still considered taxable income and should be reported to HM Revenue & Customs (HMRC). This applies regardless of how you receive your income, whether it's through traditional payroll, self-employment, or cash in hand for casual work.
Not declaring cash in hand payments to evade taxes is illegal and could result in penalties. Everyone has a responsibility to ensure they are paying the correct amount of tax on their income. If you're unsure about how to handle cash payments and tax, it's best to seek advice from an accountant or directly from HMRC.
What Is The Average Salary Take Home Pay UK?
The average gross salary in the UK is £30,992 per year. After taking into account standard tax, National Insurance contributions, and assuming no pension contributions or other deductions, the average take home pay would be approximately £25,100 per year.
This amount can vary significantly depending on your personal tax circumstances, including your tax code, the region you live in, and any benefits or allowances you may receive. It's always a good idea to use a salary calculator or speak to a financial advisor to understand your exact take home pay.
Do You Get Holiday Pay With Overtime?
In the UK, whether or not you get holiday pay with overtime can depend on how regular your overtime is. If overtime is a regular part of your work and you're required to do it, it should be taken into account when calculating your holiday pay.
The UK government states that holiday pay should be based on a 'week's normal remuneration' - this would usually include any parts of your wage packet you'd normally expect to get, including compulsory overtime. However, if your overtime is voluntary, it may not be included in your holiday pay calculations. Always refer to your employment contract and consult with your HR department for accurate information based on your specific situation.
What Is A Competitive Salary?
A competitive salary is a pay rate that is at least equal to, if not better than, the average salary paid for the same role in the same industry or geographic area. Employers offer competitive salaries to attract and retain skilled employees, recognising that these employees could take their skills elsewhere.
What is deemed 'competitive' can depend on various factors, including the job sector, the level of the position, the location, and the current job market conditions. For job seekers, a competitive salary should not only meet industry standards, but also sufficiently reward the skills, experience, and qualifications that they bring to the position.
What Is Salary Sacrifice?
Salary sacrifice is a mutually beneficial arrangement between an employee and employer, which allows the employee to exchange a portion of their gross salary in return for certain non-cash benefits. The exchanged part of the salary, otherwise known as the 'sacrifice', could be put towards a range of perks, including childcare vouchers, a company car, or more commonly, pension contributions.
The primary allure of a salary sacrifice scheme is its potential for tax and National Insurance savings. As the 'sacrifice' is deducted from your gross salary (before tax), it reduces your taxable income, meaning you end up paying less income tax and National Insurance. Furthermore, employers can also benefit from salary sacrifice schemes as they could potentially save on their National Insurance Contributions (NICs). However, it's crucial to understand that while salary sacrifice can have certain advantages, it might not be suitable for everyone and may impact some state benefits. As always, understanding the ins and outs of your personal financial circumstances is key to making the most of schemes like salary sacrifice. You can read further on the benefits, advantages, and disadvantages of salary sacrifice in our guide - What Is Salary Sacrifice?
What Is A Salary Structure?
A salary structure, often crafted by organisations to ensure consistency and fairness, is a hierarchical framework that delineates the different levels of pay for jobs or job groups based on their value to the organisation. This structure takes into account various factors such as job responsibilities, experience, skill set, and market trends. By having a clear salary structure in place, organisations can maintain internal pay equity, attract potential talent, and provide a clear progression path for employees, all while ensuring that compensation remains competitive within the industry or sector.
What Is Holiday Pay?
Holiday pay ensures that employees receive their regular income while taking their entitled leave, including all relevant earnings such as overtime and bonuses. Understanding how holiday pay is calculated and knowing your rights under UK law helps ensure fair compensation during your time off. For more holiday information, calculations, entitlements, and advice on resolving disputes, read our guide - Everything You Need To Know About Holiday Pay.
What Is Sick Leave And Statutory Sick Pay?
Sick leave allows employees to take time off work due to ill health, ensuring they can recover without the stress of job loss or financial instability. Statutory Sick Pay (SSP) is the minimum amount employers must pay eligible employees who are off work sick, providing financial support for up to 28 weeks. For more detailed information about your rights and obligations, including eligibility criteria and reporting procedures, visit our comprehensive blog - Everything You Need To Know About Sick Leave And Statutory Sick Pay.
What Is Gardening Leave?
Gardening leave is a period during which an employee remains on the payroll but is relieved from their regular duties, typically during their notice period. This practice helps protect the employer's business interests by restricting the employee's access to sensitive information and preventing them from joining competitors immediately. For more detailed guidance on garden leave, visit our in-depth blog - Everything You Need To Know About Gardening Leave Including Salary.
What Is Severance Pay?
Severance pay is a financial compensation package provided by an employer to an employee upon termination of employment, typically when the separation is involuntary. It may include monetary payments, continuation of benefits, and other perks designed to support the employee during the transition period. For further information, please read our blog - Everythig You Need To Know About Severance Pay.
For a glossary and explanation of employment terms and employment contract terms, read our blog Understanding Your Employment Contract: Terminology And Definitions.
Annual Salary FAQs
If you are an employer, recruiter, Human Resources professional, or salaried employee, we tackle your frequently asked questions on monthly salary, hourly wages, overtime work, public holidays paid vacations, and other benefits:
WHAT IS A SALARY DEFINED?
A salary is defined as a fixed regular payment, typically paid monthly or biweekly, made by an employer to an employee, particularly in a non-manual or professional occupation. It's agreed upon in advance and is not typically based on the number of hours worked.
WHAT IS THE TERMINOLOGY COMPENSATION?
The terminology 'compensation' refers to the total cash and non-cash payments that you give to an employee in exchange for the work they do for your business. It might include elements such as salaries, bonuses, profit sharing, and stock options, among others. It can also include non-monetary perks such as a company car, health insurance, or life insurance.
WHAT TYPES OF PAY ARE THERE?
There are several types of pay, including hourly wage (pay based on the number of hours worked by hourly employees in an hourly position), salary (fixed amount regardless of hours worked), piece rate (pay based on the number of items produced), commission (pay based on the volume of sales), and bonuses (extra pay usually based on performance).
WHAT IS THE DIFFERENCE BETWEEN SALARY, REMUNERATION, AND WAGE?
Salary, remuneration, and wage are three terms used to describe payment for work, but they have slightly different meanings. Salary, as described earlier, is a fixed annual sum, often paid out in even amounts each pay period. A wage is usually an amount paid per hour of work. Remuneration is a broader term that includes not only the cash payments (salary or wages) but also all benefits and perks that an employee receives for their work.
WHAT IS THE DIFFERENCE BETWEEN SALARY AND SALARY PACKAGES?
A salary is a fixed amount of money that an employer pays an employee for their work, typically on a yearly basis, whereas a salary package (or total compensation package) includes not just the base salary, but also the various benefits and perks that an employee receives. These might include health insurance, retirement contributions, bonuses, stock options, and more.
WHAT IS MINIMUM WAGE?
The minimum wage is the lowest legal wage that employers can pay their workers. In the UK, the minimum wage rate varies based on the worker's age and whether they are an apprentice. The government's National Living Wage is the statutory minimum for workers aged 23 and over. It's designed to provide a basic level of income to ensure that all workers can afford essential living expenses.
WHAT IS FIXED SALARY AND FIXED COMPENSATION?
A fixed salary is a set amount of money that an employee receives regularly (typically on monthly basis, or bi-weekly) regardless of how many hours they work. Fixed compensation, on the other hand, includes a fixed salary along with other consistent benefits such as insurance, pension contributions, or company car allowances. These compensation components are 'fixed' in the sense that they do not vary from one pay period to another, providing financial stability to the employee.
WHAT IS EQUAL PAY?
Equal pay refers to the legal requirement that men and women should receive the same pay for performing the same or similar work, or work of equal value. This concept is enshrined in UK law through the Equality Act 2010, which aims to prevent discrimination based on gender in terms of pay and other terms and conditions of employment.
SHOULD I GET PAID FOR PUBLIC HOLIDAYS?
In the UK, there's no statutory right to pay for public holidays; it depends on the terms of your employment contract. Some contracts give workers the day off and pay them for public holidays, while others may require workers to work on public holidays, possibly at a higher pay rate. If you do work on a public holiday, your rights to enhanced pay, such as time-and-a-half or double-time, will also depend on your contract.