What Is a Prorated Salary?

What Is a Prorated Salary?

What Is a Prorated Salary?

‘Pro rata’ is a term used for the distribution of items (in this case, pay) depending on the correct proportion due. The term ‘prorated’, when it applies to salary, means the amount you should be paid in relation to the exact amount you have worked.

Prorated salaries are most usually considered for part-time workers. For example, if you only work two days a week out of five, your salary will be two-fifths of a full-time one.

If you are applying for a role where the salary is $30,000 prorated, the stated amount is what you would be paid if you worked full-time.

If you were to work that same job for only two days a week, you would be earning two-fifths of $30,000 – which works out at $12,000. Another person working the same job, but doing it five days a week, would earn the full amount of $30,000.

To get a prorated salary, you do need to be ‘salaried’, rather than having a zero-hours contract, for example (which specifies only an hourly wage). Salaried employees are paid a set amount of compensation for their work, instead of an hourly rate. The salary is usually expressed as a yearly amount, though it can also be specified as a monthly payment.

If you work as a freelancer or get paid hourly rather than receive a yearly salary, prorated salaries will not apply to you.

However, there are other situations in which knowing how to use pro rata is helpful. These may include working out rent and other bills or subscriptions, if they are for a portion of a month instead of a whole one.

Examples of When Pay Might Be Prorated

There are many advantages to being a full-time worker – one of these is peace of mind around getting a monthly guaranteed paycheck. That salary agreement you have in place hinges on the understanding that you work a fixed number of hours each week – usually 40 hours.

Salaried workers are generally protected by the Fair Labor Standards Act and cannot have their pay lowered without good reason. This federal law exists to maintain fair standards for employees in the private sector and in the federal, state and local governments.

In general, very small weekly fluctuations are reasonably expected in hours and output for full-time salaried workers. Therefore, if you’re a full-time worker, you probably haven’t thought about the need to understand prorated salaries – perhaps you see it as only a concept for part-time workers.

Beginning a New Job

But even as a full-time worker, you might need to understand, for example, how your salary is affected if you begin a new job in the middle of a pay period.

The amount you receive in your first paycheck will be proportional to the days you have actually worked – it will be prorated.

Leaving a Job

Similarly, if you end a job in the middle of a pay period, your last paycheck will be less than your typical ones.

It’s worth knowing how to calculate a prorated salary for these kinds of situations where your employer might make deductions on your pay.

Unpaid Leave

You may also have taken unpaid leave under the Family and Medical Leave Act or lost workdays due to disciplinary action.

If you’re in a new job and haven’t completed your probationary period, then time off is also usually unpaid and would have to be deducted in a prorated manner.

Unexpected Leave

There might be an unexpected situation that means you work less than you might normally as a full-time employee.

This could be something outside of the usual medical or family leave issues, but still understandable for your employer – being filmed for a TV show, for example. They can prorate your salary temporarily rather than reworking your entire contract.

Furlough

Similarly, there could be company-wide or departmental furloughs that reduce everyone’s working hours. This would hopefully be a temporary situation or reflect an ongoing but significant issue, like a pandemic.

Promotion

Getting a prorated calculation is not always a negative thing though. On occasion, you might receive a promotion with increased salary in the middle of a pay period. In this case, your prorated salary increase will be worked out so that you get compensated correctly for the month in the middle of the two pay levels.

Change in Availability

If you are currently a full-time employee, your availability may change, for example, you might need to start taking Fridays off. Your employer will want to make sure that the reduction in your working hours – and likely your productivity – is fairly noted.

Military or Jury Duty

It would also be worth knowing how to calculate a prorated salary if you have to take time off for military purposes or jury duty. Depending on the state you live in, an employer may or may not pay you for these days, as federal law does not require them to.

What Is a Prorated Salary? Definition, Overview and How to Calculate
What Is a Prorated Salary? Definition, Overview and How to Calculate

How to Work Out a Prorated Salary

Any employer or employee can work out a prorated salary using some simple math.

In calculating a prorated salary here, some assumptions are made. For example, we’re working with 52 weeks a year (even though the precise amount is 52.14 – and 52.29 in leap years). Another assumption we make to calculate prorated salaries is to view the average working week as 40 hours.

It’s worth noting, when working out your calculations, that you can leave out the hours you take as vacation or as sick leave. These are generally counted as paid time off by employers.

If you are using payroll software, some of the hard work can be done for you by the systems you use. If you prefer to do it by hand or to check the figures manually, the overall equation used to work out a prorated salary is:

Annual salary/number of working hours in a year (usually 2,080) x number of hours worked

Let’s look at a few examples of someone on a full-time salary having their hours prorated so that you can see how the sums are worked out. For ease in the calculations, we are working to two decimal places.

Example 1: New Hire

Tina has been hired as a perfume developer at an annual salary of $82,000, and she began her new role in the last week of July.

The two steps we would follow to work out the amount of her first paycheck are:

  1. Tina's annual salary is divided by the number of hours she would typically work in a year, which is 2,080 (52 weeks x 40 hours). Therefore $82,000 divided by 2,080 gives us her hourly rate of $39.42.

  2. Tina worked only one week in July. Her hourly rate can be multiplied by 40, which comprises a typical working week. $39.42 times 40 is $1,576.80, which is what she would be paid for July.

Example 2: Jury Duty

Alonzo missed a day and a half of work when he was called up for jury duty. His annual salary is $52,000.

The two steps we would follow to work out how this impacts his next paycheck are below:

  1. Alonzo’s annual salary is divided by the number of hours he would typically work in a year, which is 2,080 (52 weeks x 40 hours). Therefore $52,000 divided by 2,080 gives us his hourly rate of $25.

  2. Normally Alonzo would work 40 hours a week. But he missed a day and a half of work, which adds up to 12 hours. The pay to be deducted is calculated by multiplying 12 by $25 (his hourly rate). Therefore, his pay for the current month would be reduced by $300.

For your specific calculations, you will need to know:

  • The salary for your role on a full-time basis
  • What would be considered full-time hours in your company
  • The number of weeks you plan to be working during the year
  • How many work hours that you have agreed to per week

What Does a Prorated Salary Mean for Benefits/Leave?

It can be confusing to take into account the impact of having a prorated salary on your overall contract package (including vacation time, pension contributions and insurance benefits), so it’s important to clarify these things at the start of your employment.

The effects of a prorated salary will be heavily influenced by the rules where you live, as well as your employer and the contract you have agreed to.

In the UK, for example, part-time workers must not be discriminated against – and should have equal access to pension contributions and other non-financial perks (like subsidized parking).

Check all these factors yourself with regards to your local laws and your new employer.

Before you take on any role, it’s worth being clear on the key aspects of your benefits package. For example, as mentioned earlier, time taken off during a probationary period may count as unpaid in some jobs, so be prepared to pay attention to these details and ask for them to be adjusted if necessary.

Being aware of these specifics – and maybe negotiating them differently – can be important before you accept a new job. Much of your initial package can be discussed – so make the effort to research alternatives and other available options that the competition might offer.

With regards to certain issues, like vacation days, it’s typical to have them prorated. For example, if you work only two days a week, you can expect to get two-fifths of the vacation entitlement of a full-time worker.

It would be similar if your company offers a maximum number of sick days. For example, a total of 10 sick days a year prorated might be typical and would mean that, if you worked two days a week, you would only be entitled to take four sick days in total.

One item you may find prorated unexpectedly is your yearly bonus. Some employers will prorate these according to when you started work – so pay attention to these details in your contract and talk about them upfront if you want to make an adjustment or a counter offer.

Final Thoughts

It helps to have a solid grasp on how to work out prorated pay, whether you are an employer or an employee. We used to live in a world where the majority of people worked a simple nine-to-five job, five days a week, but things have changed.

If you are making a career move and thinking of switching to a role with a prorated salary, make sure you understand the mechanics of it – and if it significantly changes your take-home pay or impacts your budgeting – before you commit to anything.

Remember to check all the details with your employer before you agree to sign a new or updated contract. There may be changes you want to stipulate.

The terms of many roles are less predictable than they used to be. Whether you’re working out a part-time prorated salary or managing unexpected leave, this article should help you make your calculations.


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