nominal-salary

Nominal salary – Definition, what it is and concept

The nominal salary is the amount of money received by an employee, which appears on the payroll, as a result of the work done during a certain period of time.

The nominal salary is simply that, the amount agreed to pay for the services provided. So, if the salary for the services you provide is 900 euros, then you salary Monthly is 900 euros. So this is the amount on your monthly payroll.

When taxes, insurance, contributions, etc. are deducted from the nominal salary, what is then called net salary. Therefore, many also talk about gross wages, that is, when the nominal salary has not made any adjustments for inflation or taxes.

In many economies, what you call minimum wage is established. Governments, together with representatives of the different companies that make up the national economy, carry out conciliations.

The purchasing power of the salary is mostly taken as a reference to define minimum wages to be paid. This, as a way to adjust the nominal salary every certain time.

Characteristics of the nominal salary

The main aspect to highlight of the nominal salary is that this, by its nature, does not reflect in itself, the impact that the processes of inflation.

Another important historical feature to highlight this salary is that increases in nominal salaries may not compensate for the loss of purchasing power who experiences salary over time.

Let’s say, that at the beginning of the year you are receiving a nominal salary of 800 euros per month and inflation reports an increase in its level for that period. Let’s also say that at the end of years you continue to receive 800 euros per month. It turns out that your nominal salary has not decreased, but that it has remained at its level. However, due to the increase that has occurred in the price of goods and services, you will no longer be able to acquire the same amount of them. For example, if a loaf of bread costs $ 1 at the beginning of the period and your nominal salary is $ 800, you can buy 800 loaves of bread monthly. This, assuming you only buy bread. While if the price of the loaf of bread rises to $ 1.50 and that amount remains at 800 dollars, then you can buy only 533 loaves of bread.

Therefore, the nominal salary does not reflect the importance of acquiring the goods and services we consume. For the salary to reflect such an impact, the concept of real salary must be used. That is, the nominal salary adjusted for inflation.

Nominal salary and gross salary

Although they are practically identical concepts, the first one is usually used in terms of the inflation adjustment. Meanwhile, the second one is usually used in terms of taxes. That is, gross salary is a net salary, as nominal salary is a real salary.