Then read on here. Base pay, or base salary, is one that both parties have agreed on and that doesn't vary over time. And the company establishes a pay frequency for fixed salaries. In the UK and most European countries, salaries are usually paid monthly. Variable pay depends on the work carried out or on the targets met by the employee. This variable component is usually accompanied by a fixed base salary, which the employee will receive regardless of results.
The objective behind it is to motivate the employee. The combination of a fixed plus variable salary, as mentioned above, is known as a pay mix. This model is often used for sales or director roles where their work is directly related to the company's sales.
What are wages? It's the amount a worker receives in return for their services on an hourly or daily basis. In other words, they are paid per unit of time. So, when an employee works on an hourly or daily rate, we call this a wage and not a salary. Therefore, they won't be paid for holidays and bank holidays, and these will be discounted at the end of the month.
Here, the employee receives an amount of money for completing a task or piece of work, regardless of how long it took them. This amount is paid upon completion of the job. This type of wage covers the time a worker needs to complete the task at hand. The amount they will receive is based on time, whether we're talking about a day or a year. As the name itself suggests, this is a combination of a wage based on both piece work and time work.
This is usually reflected in a contract between both parties based on a specified amount. It's, therefore, the most widely-used model across all companies. This is where companies pay employees in cash, although this is becoming less common due to the advances in online banking. An employee is paid wages in kind when they receive goods instead of money. If you receive royalties, rent or payment for service as an independent contractor, you also have earnings that are neither wages nor salary.
While wages and earnings may be different sources of income, you'll usually include both in your year-end tax filing. Some earnings, such as municipal bond interest or Social Security income, might not be subject to income taxes. However, most earnings, minus those qualified expenses you incurred in generating this money, are included in your annual gross income for tax purposes. Some income sources, such as sales of stock or investments, are taxed differently if you've owned the investment longer than one year.
Often also called "passive" income, residual income is not a wage, but it is an earning. Residual income is generated by a service you performed in the past, whether as an employee earning wages or an independent contractor. It is income or earnings, but not wages, since you are no longer working for or performing service for the company paying you. Examples of residual or passive income include royalties for authoring a book, royalties for a patent or invention or money you receive for capturing an account that continues to generate revenue.
Depending on your relationship to the source of commissions and fees, this income might be wages or earnings. If you are a W-2 employee for the company paying you commissions, this income is a component of your wages. If you are a broker, middleman or consultant, this income source is more correctly called earnings. The IRS uses the terms wages and salary, combined with tips, commissions and bonuses, to specify money earned for providing a service to a company.
The term "earnings" is interchangeable with wages when it means money obtained for hourly or salary work. The IRS counts tips, bonuses and sales incentive as a part of wages for purposes of reporting income during the tax-reporting season. The term "earnings" has multiple meanings. It can mean money received from wages, or it can mean money received from non-earned income sources.
It can also mean the money a company gains after deducting expenses from income. Authors, musicians, performers and more usually don't receive a wage. Instead, they receive royalty payments or a percentage of the retail value for their creative work.
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