Annual pay and base pay are the two frequently used yet confusing financial terms. While both include the compensation drawn out during the course of employment, there is a lot of difference between annual pay and base pay. For instance, annual pay is always calculated on yearly basis, whereas this is not the case for base pay.
To avoid further trouble, find out below what do annual pay and base pay mean and how the two terms are different from each other
Base pay is the minimum amount of compensation you can receive out of your employment. It excludes all the additional benefits, and allowances and stands as the most basic amount of compensation to be drawn out of your job. In simple terms, the term base pay implies the compensation you get irrespective of all the raises or deductions.
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Annual pay is the compensation you receive for an entire year. Your annual pay includes all the additional benefits, allowances, and perks. It is not necessarily the minimum or initial pay and is calculated after taking all the additional dues in consideration. For instance, if you work over time, you might see a hike in your annual pay.
#1. Variation
Since base pay is the minimum compensation that you will certainly be withdrawing, it is comparatively stable and fixed in nature. Annual pay, on the contrary, is likely to vary as it depends upon the kind of additional compensation you will be withdrawing at the end of the year. It may be higher than the base pay.
#2. Total Compensation
While base pay includes your minimum and basic compensation, annual compensation means the compensation in its entirety that you draw at the end of the year. Annual compensation, unlike base pay, includes additional benefits, bonus, and commissions.
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#3. Terms In Which The Two Are Defined
The two terms are different in the way they are defined. Basic pay can be defined on hourly, weekly, monthly, or even on annual basis. Annual on the other hand is always defined in the annual terms as it is the compensation you draw out per annum.
#4. Overtime
Overtime is certainly not counted in your base pay since base pay is limited to only your minimum wage. However, annual pay, on the other hand, comes in with your compensation for the over time that you may have worked during a year.
#5. Life Insurance Policies
Annual pay includes aspects such as amount paid for the health and life insurance policies by the employer for an employee. A total sum of these premiums is added on to the base pay to compute the annual pay. Base pay, on the other hand, includes no such factors for determination of pay.
If you know more demarcations between annual pay and base pay, we would love to hear from you. Kindly use the comment box to share your thoughts and opinions with us.
