Ready to upskill your payroll knowledge about salary pro-rata? You’ve come to the right place! This article will give you an overview of what salary pro-rata is, different types of pro-rata, and how to make pro-rata calculations simpler using paiyroll® software.
Let’s start with the basics…
What is salary pro-rata?
“Pro-rata” is a Latin term that means to distribute a proportion equally.
In payroll, we use this as a method by which salary is equally distributed based on the frequency of pay. We’ll go into more detail about this distribution below.
Why is salary pro-rata important?
Salary pro-rata is crucial because it ensures fairness and accuracy in compensating employees who work part of a standard work period, such as a month or a year. Pro-rata salary calculation adjusts an employee’s salary based on the portion of time they have worked within that period.
Calculate salary pro-rata
There are four different ways to calculate salary pro-rata. Monthly pro-rata can be split by “All days of the month” or “Only weekdays in the month”. Annual pro-rata can be split in a similar manner with “All days of the year” or “Only weekdays in the year”. We’ll break this down below:
Monthly pro-rata is calculated based on either:
- All days of the month (including weekends), total of 28-31 days*.
- Only weekdays (excluding weekends), total of 20-23 days*
*depending on the length of the month
The employee’s salary will be adjusted for each pay run based on whether the “All days of the month” or “Only weekdays in the month” scheme is used.
Even though our example above uses a ‘Month’ period in contract to Annual, paiyroll® will actually pro-rata any non-annual period e.g. Weekly/2-Weekly/4-Weekly or Quarterly/6-monthly!
Annual pro-rata is calculated based on either:
- All days of the year (including weekends), total of 365 days
- Only weekdays (excluding weekends), total of 260 days
The employee’s salary will be adjusted each pay run based on whether the “All days of the year” or “Only weekdays in the year” scheme is used.
How do you choose the right pro-rata scheme?
Choosing a pro-rata scheme depends on a few different factors
- Select a scheme that is consistent and suitable across all staff
- Use an Annual scheme if you want an average days pay across a year
- Use a Period (e.g. Monthly) scheme if you want the precise daily pay in a month
Want to discuss a suitable scheme for your business? Book a free demo with us (below)!
Automate salary pro-rata with paiyroll®
With paiyroll® you can choose between 4 pro-rata schemes. Pay is then automatically calculated for starters, leavers, mid-month, or retrospective pay changes.
We also know that pay can be more complex than just an annual salary. That’s why we added a feature to let you add any number of salary schemes for any item of pay. For example, car allowance or phone allowance, to pro rata the same way.
See how paiyroll® can work for your company. Book a free personalised demo with us today!