Salary

A salary is a fixed sum of money paid by an employer to an employee, typically on a monthly or weekly basis, as agreed in an employment contract. Salaries are generally fixed payments that do not change directly with variations in hours worked, unlike hourly wages, which are calculated based on hours actually worked.

Salary forms part of an employee's total compensation package. The total package may also include allowances such as for vehicles, housing, and healthcare; bonuses; and pension contributions. Accordingly, the net amount an employee receives—called the take-home salary—differs from the gross salary stated in the employment contract, as taxes and other deductions are withheld.

Determination of salary levels

Salary levels are influenced by several factors: the skills and experience of the employee, job responsibilities, the local labor market, and the financial capacity of the employer. In many places, collective bargaining occurs in which employee unions negotiate with employers to set salary scales. Some governments establish minimum wages that employers cannot fall below.

Nominal and real salary

Nominal salary is the amount of money paid. Real salary refers to the purchasing power of that money, taking into account the price level of goods. When inflation rises, a salary that does not increase loses purchasing power. For this reason, some employment contracts include automatic adjustments linked to a price index.

Formal and informal sector

In many countries, particularly those with lower incomes, a large portion of workers are employed in the informal sector, where they are not paid regular salaries based on written contracts. In such cases, income depends on daily work or completed tasks, and worker protections are limited.