How to Work Out Pro Rata Salary For Your Staff
We support many of our clients with their payroll. One of the most common questions we get asked is how to work out pro rata salary for employees. Pro rata salary calculations are crucial for businesses, especially when employing part-time staff or those working unconventional hours. It ensures fair pay for work done, aligns with employment laws, and maintains a transparent, equitable workplace.
This guide aims to simplify the process of working out pro rata salaries to ensure you pay your employees correctly.
What is Pro Rata Salary?
Pro rata, a Latin term meaning ‘in proportion’, refers to the allocation of an amount in a proportionate manner. In the context of salary, it means calculating an employee’s wage based on the hours they work relative to a full-time employee. An example of this is that if your employee’s annual salary would be £30,000 pro rata in a full time 40-hour week, but they only work 20 hours a week, their annual salary will be £15,000.
What employees does pro rata salary apply to?
Pro rata salary calculations apply to several types of employment situations. These can include:
- Part-Time Employees: The most common application of pro rata salary is for part-time workers. Since they work fewer hours than full-time employees, their salary is calculated in proportion to the hours worked.
- Employees with Reduced Hours: Employees who have opted for reduced working hours, perhaps due to personal commitments or lifestyle choices, also have their salaries calculated on a pro rata basis.
- Joined the company half way through the pay period: If an employee joins the business in the middle of the month and after the payroll cut-off, their first payslip will be calculated on a pro rata basis. This may also apply if the employee leaves the business half way through the month.
- Employees on Maternity/Paternity Leave: In some cases, when employees return to work on a part-time basis following maternity or paternity leave, their salary is adjusted pro rata to reflect their new working hours.
In each of these cases, the pro rata salary ensures that employees are paid fairly and proportionally to the amount of work they do relative to a full-time equivalent position. It’s an important concept for maintaining equity and fairness in the workplace, especially in diverse and flexible working arrangements.
It’s important that you closely review your policies and seek professional guidance before making any calculations.
How to Work Out Pro Rata Salary
Here’s a step-by-step guide to calculating pro rata salary:
a. Determine the Annual Full-Time Salary: Know the annual salary for the full-time position the same as the one being considered for pro rata calculation. Let’s say the full time salary is £40,000
b. Calculate the Hourly Rate: Divide the annual full-time salary by the total number of working hours in a year. For example, if the full-time hours are 40 per week, multiply this by the average number of working weeks in a year (usually around 52), then divide the annual salary by this figure. Example: 40 x 52 = 2080 then: £40,000 divided by 2080 = £19.23
c. Determine the Employee’s Work Hours: Identify how many hours the employee will work. Let’s say this is 20 hours per week.
d. Calculate Pro Rata Salary: Multiply the hourly rate by the number of hours the employee will work per week (£19.23 x 20), and then multiply this by 52 to get the annual pro rata salary.
An example of this: 384.61 x 52 = £20,000.
Considerations for Holiday Entitlement
The holiday entitlement for part-time workers or those on a pro rata contract is calculated in proportion to their working hours. The principle behind this is that part-time employees should receive the same holiday benefits as full-time employees, but adjusted proportionally to the hours they work. For instance, if a full-time employee is entitled to 28 days of holiday per year, a part-time employee working half the hours should be entitled to 14 days. You can use our holiday calculator to work this out.
Employers must ensure that the method used to calculate pro rata holiday entitlement is fair and does not discriminate against part-time workers. The calculation must comply with the Working Time Regulations and other relevant employment laws.
It’s important for employers to clearly communicate how holiday entitlement is calculated. You must also ensure that all employees understand their rights and entitlements. This transparency helps in maintaining a fair and compliant workplace.
Need help on How to Work Out Pro Rata Salary?
At The HR Booth, we provide comprehensive payroll support to a diverse range of businesses, understanding the unique challenges and requirements of each. We recognise the complexities involved in how to work out pro rata salary. This is especially in aligning with the legal compliance and equity in the workplace. Our team of experts is adept at navigating these intricacies, ensuring that your payroll is accurate, compliant, and fair. If you would like any advice or support with your payroll, feel free to contact our HR experts.
How to work out pro rata salary accurately is critical for maintaining fairness and transparency in the workplace. By following the correct steps, you can ensure you are providing equitable pay to all employees. Always stay updated with employment laws to ensure compliance and foster a supportive work environment.