How To Set Base Pay for Employees: Legal Requirements, Benchmarks and Best Practices

Setting base pay is one of those decisions that looks simple on paper (“pick a salary and hire”), but gets complicated fast once you factor in awards, penalties, super, leave entitlements, and what the market is actually paying.

If you set base pay too low, you risk underpayment claims, staff churn, and a reputation that makes hiring harder. If you set it too high without a plan, you can put pressure on your cash flow and make it difficult to sustainably grow your team.

The good news is you can absolutely build a base pay approach that’s both legally compliant and commercially sensible. Below, we’ll walk you through how base pay works in Australia, what your legal “floor” is, how to use market benchmarks, and the practical steps to set (and document) base pay properly.

What Is Base Pay (And What Isn’t It)?

In Australia, base pay generally means the fixed amount you pay an employee for their ordinary hours of work, before adding things like penalties, overtime, allowances, bonuses, or commissions.

Think of base pay as the “starting figure” you build the rest of someone’s remuneration on.

Base Pay vs Total Remuneration

It’s easy to accidentally compare apples and oranges when discussing pay with candidates or internal stakeholders. Base pay is not always the same thing as “total take-home pay” or “total remuneration”.

• Base pay: the fixed hourly rate or annual salary for ordinary hours.
• Total earnings: base pay plus variable amounts (overtime, penalties, loadings, allowances, commissions, bonuses).
• Total remuneration package (TRP): may include base pay plus superannuation and other benefits (for example, car allowance, laptop, private health contributions).

This distinction matters because many underpayment issues start with unclear wording like “$X per year including everything”. If you’re not specific, you can end up with mismatched expectations (or worse, a compliance problem).

Base Pay vs Base Income

You might also hear the phrase base income. In an employment context, it’s often used to describe the fixed portion of earnings (similar to base pay). However, different systems (payroll, lenders, visa applications, etc.) can define “base income” differently.

As an employer, your safest approach is to define clearly (in writing) what you mean by base pay, what is included, and what is paid separately.

What Are Your Legal Minimums When Setting Base Pay?

In Australia, your base pay can’t be set in a vacuum. Even if you and your employee “agree” on an amount, you still need to meet the legal minimums that apply to the role.

In most cases, your legal floor is determined by a combination of:

• the National Minimum Wage (where no award or enterprise agreement applies); and
• the relevant Modern Award or Enterprise Agreement (which often sets higher minimum rates and extra conditions).

1) Check Whether a Modern Award Applies

Many small businesses are covered by Modern Awards, even if you don’t realise it. Awards can apply based on:

• your industry (for example, hospitality, retail, cleaning);
• the employee’s occupation (for example, admin/clerical roles); and
• the classification level (based on duties, skills, responsibilities, and experience).

Awards can set:

• minimum hourly rates and annual salaries;
• penalty rates (weekends, public holidays, late nights);
• overtime rules;
• allowances (uniform, tools, travel, meals);
• minimum engagement periods (particularly relevant for casuals); and
• loadings (like casual loading).

If you’re unsure about coverage, getting award compliance right early is one of the simplest ways to avoid underpayment risk later.

2) Decide Whether You’re Paying Hourly or Salary (And Make Sure It Still Covers Entitlements)

You can pay base pay as an hourly rate or as an annual salary.

But if an award applies, paying a salary doesn’t automatically “switch off” award entitlements like overtime and penalty rates. You need to make sure the salary is structured so it properly compensates the employee for what they would have received under the award (including when they work outside ordinary hours).

It also helps to be clear internally about the difference between salary vs wages, because the legal and payroll treatment can differ depending on how the employee works and how you record time.

3) Don’t Forget Superannuation and Leave

Base pay conversations often focus on the headline number, but your employment cost includes more than that.

As a general rule, you’ll need to consider:

• Superannuation (whether your offer is “plus super” or “inclusive of super” should be crystal clear - and you should confirm the right treatment for your situation with your accountant or payroll provider);
• Paid leave for permanent employees (annual leave, personal/carer’s leave, etc.); and
• Annual leave payments and any applicable loading, where relevant under an award (the rules can vary, so it’s worth understanding annual leave payments and what needs to appear in payroll).

Base pay is only “safe” if the rest of your employment setup is consistent with it.

4) Factor In Termination-Related Minimums (Notice and Final Pay)

When setting base pay, it’s smart to think ahead to what happens if the role ends. Your obligations around notice and final pay can depend on the employee’s pay rate, length of service, and what applies under the award and the Fair Work Act.

For example, you may need to budget for payment in lieu of notice if you decide to end employment immediately rather than having the employee work out their notice period.

And if you’re ever dealing with a restructure, having a rough sense of redundancy cost exposure helps - many business owners use a tool like a redundancy calculator as an early budgeting checkpoint (even before getting advice on the specific situation).

How To Use Market Benchmarks Without Creating Legal Risk

Once you’ve identified your legal minimums, the next step is working out what the market is paying for similar roles - because legally compliant doesn’t always mean competitive.

Start With the Role (Not the Person)

A reliable base pay benchmark process begins with a clear role definition. Before you compare salaries, clarify:

• core duties and responsibilities;
• required qualifications or licences (if any);
• expected working hours (and whether outside-hours work is common);
• level of supervision and decision-making authority; and
• any “must-have” experience.

This will help you match the role to the right award classification (where relevant) and compare it to market data more accurately.

Use Multiple Data Points

Market benchmarks are useful, but they’re not always consistent. For small businesses, it’s best to triangulate your base pay using several sources, such as:

• recent job ads for comparable roles in your location;
• industry associations and informal networks;
• recruiter feedback (especially if you’re hiring for hard-to-fill roles); and
• your own retention and performance data (what pay level keeps good people long term?).

Be careful with salary guides that don’t distinguish between base pay and total package, or that assume a different set of working hours than your business requires.

Don’t “Benchmark Below the Award”

It sounds obvious, but it’s a common trap: you see market rates that appear lower than the award minimums and assume you can pay them because “everyone else does”.

If an award applies, the award still sets your legal minimum. Market benchmarks help you decide how far above the minimum you need to go to attract and keep the right team - they don’t replace the minimum.

A Practical Step-By-Step Process To Set Base Pay in Your Small Business

If you’re building a base pay structure from scratch (or cleaning up a messy one), this process can help you set consistent rates while keeping compliance front of mind.

Step 1: Identify the Employment Type

Base pay can look very different depending on whether the employee is:

• full-time (typically works a standard pattern of hours);
• part-time (regular hours, less than full-time); or
• casual (no firm advance commitment, generally paid a higher hourly rate due to casual loading).

For casuals, base pay is often discussed as the underlying minimum rate plus a casual loading (often 25% under many awards, but it can vary depending on the award and the circumstances). If you want a quick sense-check, a casual loading calculator can help you understand the numbers you’re working with.

Step 2: Confirm Award Coverage and Classification

If a Modern Award applies, confirm the correct classification level for the role. This is where a lot of businesses get caught out - particularly if a role has evolved over time or includes higher-level duties that push the classification up.

If you’re not confident, it’s usually worth getting advice early, because a misclassification can create backpay exposure across multiple entitlements (not just base pay).

Step 3: Decide on Your Pay Strategy (Minimum, Competitive, or Premium)

Once you know the legal minimum, decide where you want to sit in the market. Common strategies include:

• Minimum-compliant: you pay close to the award minimum and rely on training, culture, and flexibility to attract staff (can work in some roles, but watch turnover).
• Competitive: you target the middle of the market to attract stable performers and reduce churn.
• Premium: you pay above-market to attract scarce talent, drive higher performance, or reduce hiring risk.

There’s no single “right” answer - but picking a strategy helps you stay consistent and avoid ad hoc pay decisions that are hard to justify later.

Step 4: Decide What’s Included in Base Pay vs Paid Separately

This is where many pay disputes start. Be clear about:

• ordinary hours covered by the base pay;
• how overtime is handled (paid, time off in lieu if permitted, or included via an agreed structure);
• penalty rates (if the employee works weekends/public holidays/late nights);
• allowances; and
• bonuses/commissions (and whether they’re discretionary).

If you pay an annual salary to cover a role that regularly works outside ordinary hours, you’ll usually want a written structure that explains how that salary relates to award entitlements (and a process to review it).

Step 5: Put It in Writing in an Employment Contract

Your base pay decision should be properly documented. A clear Employment Contract helps you set expectations around pay cycles, hours, overtime, and what happens if the role changes.

This is also a good time to align your internal payroll processes (time sheets, rosters, approvals) so what you document matches what happens day to day.

Best Practices to Protect Your Business (And Keep Base Pay Fair and Sustainable)

Base pay isn’t just a recruitment number - it’s part of risk management. These best practices can help you avoid common issues while building a pay structure that supports growth.

Review Base Pay When Duties Change

In small businesses, roles change quickly. A team member hired as “admin support” can become an office manager within a year. If their responsibilities expand, their award classification (and minimum base pay) might need to change too.

A simple habit is to review base pay whenever you:

• promote someone;
• change their title and core duties;
• add supervision or managerial responsibilities; or
• significantly change working hours (for example, adding regular weekends).

Keep Records That Match Reality

Compliance isn’t only about paying the right base pay - it’s also about being able to show what happened if there’s ever a dispute or Fair Work audit.

Make sure your payroll records, rosters, and time tracking actually reflect:

• hours worked;
• breaks taken;
• overtime approvals; and
• any allowances paid.

Good recordkeeping makes it much easier to identify issues early and fix them before they become bigger problems.

Avoid “Deductions by Default”

When base pay is tight, some businesses try to recoup costs through deductions or withheld amounts (for example, for breakages, till shortages, or unreturned equipment). This is a high-risk area.

In many cases, withholding pay can be unlawful unless it meets strict requirements (and you handle it correctly). If you think deductions might be necessary, it’s worth getting advice before implementing a policy.

Set Pay Bands Early (Even If You’re a Small Team)

You don’t need a corporate HR department to have pay bands. Even a simple internal table can help:

• keep offers consistent across hires;
• reduce pay inequity risk;
• make performance reviews and increases easier; and
• support budget forecasting.

A practical approach is to set a minimum and maximum base pay for each role level, then document what moves someone within the band (experience, performance, additional duties, leadership responsibilities).

Communicate Clearly During Hiring

To avoid misunderstandings:

• state whether your offer is “plus super” or “inclusive of super” (and confirm payroll/tax and superannuation settings with an accountant or payroll specialist if you’re unsure);
• clarify ordinary hours and where overtime/penalties apply;
• confirm pay frequency (weekly/fortnightly/monthly); and
• avoid vague promises (for example, “you’ll definitely earn $X with overtime”) unless you can back that up.

Clear communication is not just good culture - it reduces the risk of disputes down the track.

Key Takeaways

• Base pay is the fixed pay for ordinary hours, and it’s different from total remuneration (which may include super, bonuses, penalties and allowances).
• Before you set base pay, confirm your legal minimums under the National Minimum Wage and any applicable Modern Award or enterprise agreement.
• Using market benchmarks is helpful, but it doesn’t override award requirements - the award still sets your “floor” where it applies.
• A consistent process (employment type, award classification, pay strategy, inclusions/exclusions) helps you set base pay that’s fair, competitive, and sustainable.
• Document base pay properly in an Employment Contract and make sure your payroll practices match what’s written.
• Regular reviews and good recordkeeping are some of the easiest ways to reduce underpayment risk as your business grows.

General information only: This article is designed to provide general information and doesn’t take into account your specific circumstances. Superannuation, payroll and tax outcomes (including whether amounts are treated as “inclusive of super” or “plus super”, and how payroll calculations are applied) can vary - consider confirming your approach with an accountant or payroll specialist, and get legal advice if you’re unsure about your obligations.

If you’d like help setting up base pay structures, checking award coverage, or putting the right Employment Contracts in place, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.