What is a Salary?

• What types of pay are there?
• What is a good salary?
• To what legal basis is a salary tied?

What types of pay are there?

Salary (other times referred to as wage, payment, or compensation, although these have slightly different meanings) is a term familiar to nearly every contracted employee. However, there are several other types of pay for different occupation types that recruiters should be aware of:

• Salary (remuneration for soldiers and civil servants, formerly “pay”)

• Honorarium (pay for freelancers)

• Fee (doctors, dentists, notaries and freelance lawyers)

• Wages 

• Training allowance 

• Internship pay

• Piecework wage

What is the difference between wage and salary?

The two terms are often used interchangeably. While both involve compensation for work performance, wage and salary are by no means the same thing. This is the difference between the two types of remuneration:

Salary

Salary is the term used to describe the pay of employees. They perform a fixed number of hours per week (usually 40h) and receive a fixed monthly amount in return. This is regardless of the work performed, the length of a month and the number of possible days off due to vacation, weekends, or holidays.

Wage

The wage, on the other hand, is usually calculated on an hourly basis, i.e. it is strongly oriented to the actual work performed. This type of pay can vary each month depending on the hours worked.

What is a good salary?

The amount (and composition) of the salary is up to the employer and is usually a matter of negotiation. Whether a salary can be considered “good” is dependent on a number of conditions:

• An employee’s benefits are compensated at an appropriate level for their workload and skills

• The employee’s living expenses are adequately covered

• The level of pay also allows the employee certain freedoms (e.g., pets, hobbies, and vacations)

In principle, there are no upper limits to salaries, but a minimum monthly amount is prescribed by the minimum wage, which ensures the livelihood of the employee.

Generally, public salaries are a little more transparent and an employee can usually estimate their salary trajectory with ease. Here, the amount of the salary is linked to collective agreements and seniority and is increased at regular intervals and is therefore usually more generous than in the private sector.

However, companies in the private sector also frequently offer attractive salaries and thus gain a competitive advantage, because a good salary standard can mean plus points for employer branding and determine success in recruiting. As there is no pre-defined cap in the private sector, as there is in the public sector, the earning potential can be higher.

When should a salary be increased?

Beyond the set monthly salary and additional agreements between companies and their employees, salaries can be improved, for example, to:

• Compensate for overtime worked

• Reward for a certain number of completed projects 

Companies also often offer:

• Christmas bonuses

• Holiday pay

• Bonuses (e.g. Corona bonus) 

• Commissions

• Profit-sharing

But some additions to compensation that aren’t a monetary salary are also possible, such as company cars for private use, company pension schemes, free/subsidized lunches, and further employee benefits.

If a promotion takes place, this is also usually linked to a permanent and often a salary increase.

To what legal basis is a salary tied?

The most important legal basis for regular salary payments is the employment contract between the company and the employee, which determines the amount of remuneration. In order to be able to speak of at least a fair salary, the amount of the salary is also bound to various laws. These laws differ depending on the country, meaning every country has a different minimum wage.

An example, of this can be found in Germany, where employers are subject to the German Minimum Wage Act (MiLoG). The MiLoG specifies that:

People work in order to be able to make a living. In order to ensure that basic living costs are covered, the hourly wage under MiLoG must not fall below a minimum amount of just under €10. An increase to €12 is planned for the future.

Continued Remuneration Act (EFZG):

In order to secure this livelihood in the long term, an employee is dependent on regular payments, even if he or she is once ill/unable to work. In order not to financially disadvantage either the company or the employee in an unacceptable way, the EFZG regulates the continued remuneration. It specifies who pays the salary under which conditions, for how long, and in what amount, if an employee is absent for a longer period of time.

General Equal Treatment Act (AGG) and Pay Transparency Act (EntgTranspG)

Discrimination on the basis of age, gender, ethnicity, religion, disabilities, and many other grounds has occurred in the past not only in everyday working life but also with regard to salary. 

The AGG and the EntgTranspG are intended to increase the chances of previously disadvantaged groups of people to receive the same pay for the same work and equivalent qualifications (“equal pay”).

When must the salary be paid?

This depends on the agreements made in the employment contract between the company and the employee. Most companies transfer the salary at the end of the month, but mid-month payments are also steadily gaining in popularity.