Telling the truth about SME life today

How To Work Out Pro Rata Salary

How Is Pro Rata Annual Leave Calculated For Part Time Employees

Pro-rata is a Latin term that means “in proportion”. In the context of salaries, a pro-rata salary means pay in proportion to the time employees work, although it can mean share dividends etc.

This is important for a business or company owner to understand. In the modern business world, part-time employees take on specialised and important roles and pro-rata is used to calculate their salary. This allows a business to grant fair compensation for the work they do.

But how do you calculate pro-rata salary? In this article, we will go over how to calculate on a pro-rata basis, holiday entitlement, and the best practices that can help elevate your business and employees.

Calculating Pro Rata Pay

Accurate pro-rata calculation is key to forecasting the cost of labour. All business owners know that logistics is half the battle to elevating your company. Properly calculated pro-rata salaries allow for clear and informed financial decisions that can optimise work done, as well as a reserve capital for other ventures.

The following is an explanation of the steps in calculating pro rata:

  1. Determine their work hours – Before any calculation can be done, you need to know how many hours they will work weekly, or your closest guess if it’s undecided.
  2. Full-Time Employee Salary Benchmark – Research how much a full-time employee of a comparable role would earn annually, taking any work outside of contracted obligations into consideration.
  3. Break Down Annual Salary – Dividing the full-time employees’ annual salary by the number of weeks in the year (52) will give you the weekly wage of the new employee.
  4. Part-time employees’ hours – Take the weekly full-time hours wage and divide it by the standard full-time salary per 40-hour work week. This is the hourly rate of the equivalent full-time salary.
  5. Calculate Pro Rata Pay – Multiply the hourly rate by the hours the part-time employee works. That will determine the gross amount during the pro-rata pay period.

Pro Rata Basis Calculator

 

Maths isn’t fun, so we’ve included a pro-rata calculator example below.

Example – Office Administrator

StepCalculation
1. Gather the Essentials
* Full-Time Salary Benchmark:£35,000 per year
* Standard Workweek:40 hours
* Part-Time Employee’s Schedule:20 hours
2. Break Down the Annual Salary£673.08 per week
3. Factor in Part-Time Hours£16.83 per hour
4. Calculate Pro Rata Salary£336.60 per week

 

Calculating Pro Rata Holiday Entitlement

Firstly, let’s understand the obligations toward pro-rata holiday time.

  • Legal Minimum – All UK business owners are required to give 5.6 weeks of paid pro rata holiday annually.
  • Best Practice – If part-time employees will be working at your company for a time, consider rounding up or giving a little extra annual leave. This engenders loyalty and kills any chance of dispute.

 

Calculating pro rata annual leave is a simple formula.

Example:

StepCalculation
1. Days per week worked3 Days
2. Multiply by 5.616.8 Days

Calculating A Pro Rata Dividend

For the higher level staff in the company. Dividends are payments made by a company to shareholders. This can also come in the form of a share dividend, a payment in the currency of shares. How much each dividend is ultimately worth is worked out on a pro-rata basis.

The equation is simple: a share dividend will reflect the proportion of a shareholders’ stake in the company. This is calculated based on the percentage of their outstanding shares. It’s worth noting that if an investor purchases shares halfway through a company’s financial year, they won’t receive a full annual dividend.

For simplification, see the following table:

StepCalculationExplanation
1. Annual Dividend per Share£0.50Standard dividend for a full year of ownership.
2. Shares Purchased200 sharesInvestor’s holding.
3. Pro-Rata Factor0.5Reflects timeframe shares were held (half-year ownership).
4. Pro-Rata Dividend£0.50 x 200 shares x 0.5Calculates the investor’s proportional dividend payout.
5. Total Pro-Rata Dividend£50Final dividend payment.

 

Pro Rata Salary Payroll Software

Invest in the right payroll software for your pro rata wage calculation and payment.

An example of this is Xero – a popular cloud-based platform that simplifies salaries on a pro-rata basis. This includes pro rata share dividends and holiday entitlement. Many high-ranking finance managers use software such as these to keep track of all entitled benefits and finances.

Overall, the right salary payroll software is up to you, but it becomes the mechanism by which you’ll approach all things pro rata.

Where and when to seek advice.

Calculating on a pro-rata basis is a fair approach that boosts a company, but it can be a lot to take in, and fundamentally change how you make decisions. There are many accountants and professionals in the market who deeply understand the pro rata salary and how it intersects with legal liability, money concerns, and tax laws.

It’s important to know when to seek advice. Consider consultation when:

  • Complex Scheduling – When considering taking on an employee with irregular hours, muddying their pro rata salary.
  • Business Transitions – Massive changes to a business in the form of mergers, acquisitions etc. bring huge adjustments to roles, responsibilities and, of course, pay on a pro-rata basis.
  • Legal Considerations – You may want specialised advice if you suspect your stance on a pro-rata salary may invite legal complications.

Definition of Pro Rata

Pro Rata As A Principle

“A man is entitled to the sweat on his brow,” is a saying that works for pro-rata. If you reward someone proportionally for their work through a strong pro-rata business principle, then you bring great benefits to your bottom line:

  • Attractive – Competitive wages are very attractive to part-time employees. Part-timers with the skills and talent to make the most of their time working find that companies that operate on a pro-rata basis reward them well.
  • Workplace Morale – When full-time employees are getting paid their worth, then they quickly become invested in their role. High morale is infectious and usually comes with support networks and healthy social functions. 

Conclusion

Overall, the bigger a business gets, the more complicated pro-rata will inevitably become. Planning and being able to accommodate the additional figures will keep you ahead. We hope this overview of pro-rata has been helpful. 

Trending

Topic

Related Stories

More From

Most Read

Trending

If you enjoyed this article,
why not join our newsletter?

We promise only quality content, tailored to suit what our readers like to see!