Salary Definition: Meaning, Examples, and How It Works

The term salary is one of the most common concepts in employment. Knowing the salary definition helps job seekers and employers understand compensation packages and labor law implications.

What Is a Salary?

A salary is a fixed regular payment, typically expressed as an annual amount, paid to an employee by an employer. It is divided into equal paychecks on a monthly, semi-monthly, biweekly, or weekly basis. Salaries are common in full-time, professional, and managerial positions.

Salary vs Wage vs Commission

Salary differs from wages, which are paid based on hours worked, and from commissions, which are tied to sales. Salaried employees usually receive consistent income regardless of exact hours worked.

How Salary Is Calculated

To calculate salary, employers divide the annual salary by the number of pay periods.

Example: $60,000 per year divided by 24 semi-monthly periods equals $2,500 per paycheck.

Gross Salary vs Net Salary

Gross salary refers to total pay before deductions (taxes, retirement contributions, health insurance). Net salary is the amount employees actually receive after deductions.

Base Salary and Total Compensation

Base salary is the guaranteed pay. Total compensation can include bonuses, overtime, profit-sharing, stock options, and benefits.

Global Salary Perspectives

The meaning of salary is consistent worldwide, but payment schedules, benefits, and legal requirements differ by country. For example, some countries require 13th-month pay or holiday bonuses.

Frequently Asked Questions (FAQs)

What is the simple definition of salary?
A salary is a fixed regular payment agreed upon between an employer and an employee, typically expressed as an annual figure and paid at regular intervals.

How is salary different from hourly wage?
Salary is a set annual amount paid regardless of hours worked, while hourly wage depends on actual hours.

What is included in salary?
Salary usually includes base pay and may include allowances, but excludes bonuses and benefits unless specified.

Can a salary include overtime?
Usually not for exempt employees, but some salaried positions still pay overtime if classified as non-exempt.