Pro-rata Calculation Methods
PayRun.io supports automatically calculating the proportional amount of employee's salary that is due where the full period is not worked. This could be for any number of reasons the most common being the employee started or ended their employment mid way through the current month but could equally be because they switched from a full-time to a part time basis, either way the normal salaried amount needs to be reduced accordingly.
Different Calculation Methods
There is no firm rule on how the calculations should be performed. Some methods suit certain scenarios better than others and some are more or less generous than others, the chosen method is really at the discretion of the employer.
PayRun.io current supports five differing pro-rata methods, each is explained in detail below using the following example employee who is starting employment with the company mid way through September.
- Pay frequency: Monthly
- Pay period: 1st - 31st September
- Employee start date: 13th September 2017
- Annual salary: £25,0000
- Working week pattern: Mon-Thur
Pro-rata calculations are a performed with a rounding precision of 4 decimal places of a pound and the final amount is then rounded up to the nearest whole penny.
Method 1: Annual260Days
260 days equates to roughly the total number of working days in the year (Mon-Fri). A daily rate is calculated by dividing the annual salary by 260. The daily rate is then multipled by the number of standard working days (standard Mon-Fri) that fall within the period, this method does not take into account the employee's actual working week pattern.
- Daily rate: 25,000 / 260 = 96.1538
- Qualifying days: 13th to 31st = 13
- Pro-rata: 13 * 96.1538 = 1249.9994
- Salary due: £1,250.00
Method 2: Annual365Days
Annual365Days method is almost identical to Annual260Days; 365 days equates to roughly the total number of days in a calendar year. A daily rate is calculated by dividing the annual salary by 365. The daily rate is then multiplied by the number of days remaining that fall within the period, this method does not take into account the employee's actual working week pattern.
- Daily rate: 25,000 / 365 = 68.4932
- Qualifying days: 13th to 31st = 18
- Pro-rata: 13 * 68.4932 = 890.4116
- Salary due: £1,232.88
Method 3: AnnualQualifyingDays
Please Note: Based on normal 5 day week, results using AnnualQualifyingDays are equivalent to Annual260Days.
In contrast to Annual260Days and Annual365Days, the AnnualQualifyingDays method uses the employee's specified working week pattern to determine the exact number of days the employee should be paid for. The daily rate is calculated based on the number of days normally worked per week. The daily rate is then multiplied by the number of working days remaining in the period.
- Number of days worked each week: 4
- Daily rate: 25,000 / (52 * 4) = 120.1923
- Qualifying days: 13th to 31st = 10
- Pro-rata: 10 * 120.1923 = 1201.923
- Salary due: £1,201.93
Days Per Period Methods
Other pro-rata options are the "Days Per Period". These methods divide the salary by the number of days in a period and then use the period days as a multiplier.
Method 4: DaysPerCalendarMonth
DaysPerCalendarMonth uses the number of days within the calendar month as the divisible factor. Using this method, the value on a given day is proportionate to the number of days in that calendar month. For example; the day rate in January is less than the day rate in February.
- Monthly payment: £3,100.00
- January day rate: £3,100.00 / 31 days = £100.00
- February day rate: £3,100.00 / 28 days = £110.7142
- Pro-rata Period: JAN 25 to FEB 7 (7 January days and 7 February days)
- Salary due: £1,475.00 (Rounded up)
Method 5: DaysPerTaxPeriod
The DaysPerTaxPeriod method is similar to "Days Per Calendar Month", except the monthly tax period is used in stead of the calendar month. The value of single day is dependent on the number of days within the tax period.
Monthly tax periods run from the 6th to the 5th. Example: Month tax period 1 starts on April 6th and ends on May 5th.
The tax starts on April 5th, so monthly tax period 1 runs from APR 6 to MAR 5 (30 days).
- Period payment: £2,250.00
- Period 1 day rate: £2,250.00 / 30 days = £75.00
- Period 2 day rate: £2,250.00 / 31 days = £72.58
- Pro-rata Period: APR 29 to MAT 12 (7 period 1 days and 7 period 2 days)
- Salary due: £1,033.06