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Paying your employees a salary can be a smart move for businesses because it eliminates some of the guesswork when dealing with wage calculations. But what if your employee doesn’t work the contracted amount of hours or days in their pay cycle? In this situation and a few others, it’s essential to know how to calculate their salary pro rata.
What is pro rata salary?
This is a Latin term that translates to “in proportion” or “proportional”. It refers to the even distribution of something, depending on the value of your share. Pro rata salary takes into account the number of hours an employee has worked and pays them accordingly. For example, if an employee has worked half of the year, they would be paid half of their annual salary.
How to calculate pro rata salary?
To calculate an employee's pro rata salary, you'll need to know a few key pieces of information beforehand: the employee's annual salary, the total number of working hours in a full year for a full-time employee at your company (e.g. 2,080 hours for 52 weeks at 40 hours per week), and the actual number of hours the employee worked during the period you need to calculate their pro rata pay for.
Once you have those figures, here are the steps to determine their accurately pro-rated pay:
- Get the employee's annual salary and the total number of working days in a full year for your company. For example, if employees work 5 days per week, there are roughly 260 working days in a year (52 weeks x 5 days).
- Divide the annual salary by the total annual working days to get the daily rate.
- Count how many days the employee actually worked during the period.
- Multiply the daily rate by the number of days/hours the employee worked.
The result is the pro rata salary for that period. You can also substitute hours for days if tracking the employee’s hourly rate is more appropriate.
Pro rata salary calculation example
Using the above method, let’s work out an example.
Other methods to calculate salary pro rata
Depending on the reason for needing to calculate your employee’s salary, you might want to use an alternative method. For example, if you’ve given your employee a raise during a pay cycle, you’ll need to calculate a pro rata salary to reflect the increase.
How to work out pro rata salary for a pay rise
1. Take the new salary and divide it by 52 to calculate their weekly rate
Yasmin’s new salary is £40,000. So her weekly rate (40,000/52) is £769.20.
2. Divide this weekly rate by the number of days worked
Yasmin works 5 days a week. So her daily rate (£769.20/5) is £153.8.
3. Minus the previous daily rate from the new rate
If you don’t know their previous daily rate, go back to the previous steps to work it out. Once you have, subtract it from the new rate.
Yasmin’s previous daily rate was £120.
£153.8 - £120 = £33.8.
4. Multiply the increase by the required number of days
Yasmin’s new salary will be in effect for 10 days of the current pay cycle.
£33.8 x 10 = £338.
5. Add the result to your employee’s monthly salary
Yasmin’s normal monthly salary was £2,600. Taking into account the 10 days of her salary increase, she will receive £2,938 (£2,600 + £338).
Then her new salary will permanently come into effect from the next pay cycle.
How to calculate pro rata holiday?
In general, you'll just need to figure out the number of days your employee has worked in a given year and multiply that by the number of holidays they are entitled to receive. For example, if they’ve worked for 250 days in a year and your company gives 2 weeks of holiday, your employee would be entitled to 10 days off (250 x 2).
Of course, there may be some slight variations depending on your company's policies, but this method should give you a good starting point.
How pro rata salary affects benefits
According to the Part-Time Workers Regulations, part-time employees are entitled to the same benefits as full-time employees.
This means that if your business provides a pension plan to full-time employees, you must also offer the same benefit to part-time employees on a pro rata basis. It's not just limited to pay-related benefits, as part-time employees must also receive the same non-monetary benefits as their full-time counterparts.
For example, if full-time employees are given access to a gym membership or get their birthday off as annual leave, part-time employees should receive the same benefits. This ensures that part-time employees are not disadvantaged in any way and are treated fairly and equally in the workplace.
Should I hire part-time or full employees for my business?
Building a successful team is the cornerstone of any small business. But while there's no one-size fits all solution, deciding between part-time and full-time staffing can be tricky. Carefully weighing your options will ensure you recruit the best people to help your organisation thrive.
Advantages of hiring part-time employees
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Flexibility: Part-time employees can be an invaluable resource for busy businesses. By offering increased scheduling flexibility and workload variability, they help to ensure that staffing levels remain in line with changing demand while providing cost savings during off periods.
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Part-time staff are a cost-effective solution for businesses looking to reduce their overheads. With the ability to schedule employees in accordance with their needs, companies can save significantly!
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Diverse skill set: Part-time employees can bring a diverse skill set and fresh perspective to a business. They may have experience in different industries or areas of expertise, which can be beneficial for a business looking to expand its skill set.
Disadvantages of hiring part-time employees
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Training costs: With the hiring of part-time employees comes additional considerations - more training, increased supervision and a larger time investment than is typically required for full-timers. It's important to be aware that this may lead to greater costs upfront in order to ensure positive long term results.
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Lack of continuity: Part-time employees may not be as invested in the business as full-time employees and may not provide the same level of continuity or consistency.
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Limited availability: Although part-time employees offer much needed flexibility in staffing, their unavailability on short notice can present a challenge to businesses during unexpected circumstances.
The bottom line
Calculating pro rata salary allows businesses to provide just compensation even when staff work different hours. It's an important consideration when deciding whether part-time or full-time employees are the right fit for a business, since there can be hidden costs and paperwork involved in hiring less than full time workers. Carefully weighing all of these factors ensures that businesses make responsible decisions regarding their staffing needs - both now and in the future.
With understanding of how pro rata salary works, you can also manage equitable wages regardless of working hours, creating a workplace environment built on fairness and trust!
Frequently Asked Questions
How do you calculate part time salary?
Simply multiply the hourly rate by the number of hours worked to calculate your total earnings, minus any deductions that apply.
What is pro rata?
Pro rata is a Latin term that means “in proportion.” It's commonly used in business to refer to the practice of reducing or increasing something in proportion to other amounts or variables.
What is pro rata used for?
It's commonly used in business to refer to the practice of reducing or increasing something in proportion to other amounts or variables. For example, if a company is hiring new employees but has limited time to train them, the training hours may be allocated pro rata among all new hires so that everyone gets an equitable amount of instruction.
