How to Work Out Pro-Rata

As an employer you've undoubtedly heard the term ‘pro rata', but do you know exactly what it means and how to work out pro-rata pay and holiday entitlement calculations for your employees?

In this article, we'll be taking a look at the calculations you need to make, as well as other areas you need to consider when employing someone pro rata. Like with all aspects of payroll and annual leave, you should ensure that these calculations are correct and fair or you could find your business on the end of a legal dispute at an employment tribunal.

Get immediate support to calculate pro rata salary and holiday entitlement for your employees, get in touch with a member of our expert HR advisory team on 0808 501 6651.

You can also use Croner’s pay and rewards services to assist with employee salary benchmarking and other benefits.

What is pro rata salary?

Let's start with a definition of pro-rata. Derived from the Latin “pro rata parte” it translates to modern English as “in proportion”. In layman’s terms a pro rata salary is a salary in proportion to a factor, such as the number of working days in leave years or the number of hours worked equivalent to full time hours, etc.

For example, if an employee's salary would be £26,000 pro rata in a 40-hour week, but they only work 30 hours a week, their annual salary would be £19,500.

So, someone who works ‘pro rata' is getting a proportion of a full-time salary.

Who does pro rata annual salary apply to?

In its most basic form, a pro rata salary is an amount of pay you quote an employee based on what they would earn if they worked full-time, so a common question that employers often need answering is “what criteria would my employee have to satisfy in order to receive a prorated salary?”

Well, the above pro rata calculation of salary applies to any employee who satisfies one or more of the following:

Working part-time in a business

Part-time employees receive a proportionate amount compared to a full-time employee. The person will have the same skillset as the full-time employee and will perform the same role – for a smaller amount of time.

Part-time employees work less than 35 hours per week and receive the same salary as a full-time employee on a pro-rata basis.

Joining a company in the middle of a pay period

If you take on an employee after your payroll cut-off then that employee still needs to be paid. Because they have joined your business in the middle of the month the salary they receive on their first payslip will be on a pro rata basis for the days they have worked.

Resignation or dismissal in the middle of a pay period

Exactly the same as a new starter joining your organisation in the middle of a pay period, you may also get leavers.

For employees who either resign or are dismissed, their final pay slip will be their normal remuneration but calculated on a pro-rata basis for the days worked.

Being promoted in the middle of a pay period

Let’s say you have an outstanding employee who you want to promote. If that promotion is granted in the middle of a pay period and it comes with a salary increase, then the new salary may need to be paid on a pro-rata basis.

So, the employee would get their previous rate for the days worked and the new rate for the remaining days worked in that pay period.

Working for a specific time period

An employee may only work for your business for a short duration. This might happen if another team completes a set of tasks, for example. In that instance, your company would pay the fixed term employee's salary on a pro-rata basis.

Unpaid leave

Your contracts and documentation will outline your sick pay policy, annual leave policy and any other leave (such as maternity, paternity or bereavement).

Every company has their own set of paid leave terms. If an employee has exhausted their annual leave and you agree to unpaid time off, their salary would then be paid on a pro-rata basis to reflect this.

No business wants to end up facing an employment tribunal, so let’s discuss how to get pro-rata right.

How to work out pro rata salary

The basic calculation uses simple equations, and you can use them to work out pro-rata is as follows:

• Annual salary / full-time hours x actual work hours.

The output value isn't always 100 percent accurate. The better way to calculate pro rata pay entitlement is to work it out by the actual hours worked, rather than days.

 

In other words, it's more helpful to think about it as a wage, rather than a salary.

 

How to work out pro rata wages

If an employee would receive £500 for a 40-hour week, then you can easily work out the hourly rate, which is £500 / 40 = £12.5.

Once you've figured out the hourly rate, you should be able to reach the pro rata wage just by multiplying the hourly rate by the number of actual hours the employee will work. For example:

• 30 hours x £12.5 = £19,500 per annum.

If you're still struggling with how to work out pro-rata pay, remember the basic equation: Annual salary / full-time hours x actual work hours.

Does pro rata salary impact annual holiday entitlement?

One of the trickiest things to factor in with an employee receiving a pro rata salary is their holiday entitlement and holiday pay.

Pro rata holiday entitlement is the amount of holiday that an employee will get in proportion to the holiday entitlement of a full-time employee, or an employee who had joined your organistion in the middle of a pay period etc.

All employees are entitled to statutory minimum paid holiday, but with pro rata salaried staff it impacts everything from bank holiday entitlement to how much annual leave allowance is granted.

How much holiday part-time workers receive will depend on the number of hours and days a week your employee works.

An employee is entitled to receive the statutory minimum holiday entitlement of 5.6 weeks.

If a full-time employee works 5 days per week that’s a minimum of 28 days leave which can be inclusive of bank holidays.   If your part-time employee works exactly half as much, they are legally entitled to half as much holiday on a pro-rata basis which in this case would be 14 days.

There are a few different scenarios to consider when you calculate pro-rata holiday entitlement. Calculating holiday pay is fairly straightforward once you know how.

How to work out pro rata holiday

A part-time employee still has holiday entitlement (referred to as statutory entitlement) so let's work that out too.

There's a quick and simple trick for working out an employee's pro rata holiday. Multiply the number of days they work each week by 5.6.

If a pro rata employee works 3 days a week, then their holiday entitlement is 3 x 5.6, or 16.8 days.

Obviously, giving staff 0.8 of a holiday is awkward, for timekeeping purposes and the employee. It's usually worth rounding this up to the nearest whole number, 17 in this case.

Why the 5.6 multiplier?

Well, the basic statutory holiday entitlement of a full-time employee is 28 days (5.6 weeks). This means they work five days a week.

Five, multiplied by 5.6, gives us the full 28 days' entitlement without the need for a decimal point.

Working on a pro rata basis

Another important element to consider when employing someone on a pro-rata basis is benefits.

The Part-Time Workers Regulations state that those on a part-time income should receive the same benefits as those working full-time.

What this means is that if you offer a pension to full-time employees, then you must also offer this to those working pro rata.

The list of fair compensation doesn't stop at pay-related benefits either. If full-time employees get a gym membership or their birthday off as annual leave, those on part-time should too.

Calculate pro rata salary

To work out the annual pro rata salary for UK-based employees, you can use the following formula:

• Hourly rate x hours of pro rata worker = pro-rata salary

However, you can avoid the hassle by using a pro rata calculator online. An example of a salary calculator can be found here.

If you're calculating salary using a pro rata salary calculator online, you'll also need to calculate holiday entitlement.

Need help calculating pro-rata salary or holidays?

Speak to a Croner expert today and get advice on pro-rata employment contracts, maternity pay working hours, pay, payslips & employee benefits here, and much more.

Croner has been helping businesses with their HR, Employment Law and Health and Safety needs for over 80 years. Call today on  0808 501 6651.