Hiring salaried employees can take some of the uncertainty out of determining wages. A salaried employee typically receives the same amount each pay period. But what happens when an employee works on an unpaid day? In these cases, you must understand how to prorate salary. You can estimate the cost by using HashMicro’s online HRM & payroll software calculation scheme.
A prorated salary is when an employee is owed a portion of their salary based on the number of days worked. When an employee does not work their full day’s work, their pay is reduced. Simply, prorated salary is when an employee’s wages are divided proportionally by the number of hours worked.
For example, if an employee were hired in the middle of a pay period, their first paycheck would reflect the rate of their full-time salary but reduced in proportion to the days they worked. Companies can automate those things by using a salary payment application to make it easier.
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How to Calculate the Prorated Amount
Before calculating a pro-rata salary, you must determine how much a part-time employee would earn if they worked full-time. The precise amount will vary based on your budget and the kind of work the employee will be performing.
After determining whether or not a salaried employee is eligible for a prorated salary, the next step is determining what exactly their prorated salary would be. The steps for calculating prorated salary are the same regardless of pay frequency (weekly or monthly). The steps are listed below:
- Divide an annual salary by 52 to determine the weekly pay.
- You can divide the weekly pay by 5 to get a daily rate.
- You can divide the number of worked days by the number of workdays in a pay period to determine a prorate percentage.
- Deduct taxes the same way you normally would and take sick time and vacation time into account when prorating your employee’s salary.
Also Read: Quick Guide to Choose the Best HRM Software in Singapore
Prorate Salary Example
Mike works for you, and he is paid $60,000 a year. He has five days a week of work. You pay him $5,000 per month. Mike takes two unpaid days off from work for personal reasons during a pay period.
To determine Mike’s prorated salary, follow the steps listed above.
Divide Mike’s annual salary by 52 weeks. We’ll divide his yearly salary by 52.
$60,000 / 52 = $1,153.85
Next, calculate Mike’s daily wage by dividing his weekly salary by the average number of days he works, which is 5.
$1,153.85 / 5 = $230.77
Now, multiply Mike’s daily wage by the two days he was absent from work during the pay period.
$230.77 X 2 = $461.54
The final step is to deduct $461.54 from Mike’s regular monthly salary.
$5,000 – $461.54 = $4,538.46
Mike’s prorated salary is $4,538.46.
When is Prorating Used?
There are many situations in which a prorated number is necessary. Reviewing the most typical cases will help.
- When an employee worked for less than a year
- When an employee worked for less than a month
- When a monthly subscription began mid-month
- When a utility company bills for less than a full month of service
- When the employee has just started working or when he’s leaving the job and hasn’t worked a full week
- When an employee absent for a full day or more for personal leave
When an employee is on leave, their salary may be prorated based on how many days they’ve been gone. For example, if a salaried employee takes off five days of work due to illness, the employer may decide to prorate their salary by half. This means that instead of receiving their full salary for those five days, they would only receive half of it (two days worth of pay).
While the topic of prorated salary can be confusing, we hope that this guide has helped you better understand it. Prorated pay is a common practice for employees who work part-time or on an as-needed basis, and it should be discussed between an employer and an employee during the hiring process.
It is essential to manage a business or industry with Human Resource Management Systems to end up making managing employee administration easier. Administrative tasks such as payroll and taxes are automatically handled by every company that uses HRMS systems. This can boost the company’s performance to a higher level.
You won’t need to worry about manually calculating taxes or wages when you use HashMicro HRM Software. You can estimate the cost using HashMicro’s online HRM & payroll software calculation scheme. If you have any questions, please contact us through WhatsApp or email. Want to find out why our clients have such high expectations of us? Find out right away by starting your Free Demo!