What does Pro Rata Mean?

When it comes to paying staff, employers must ensure the right amounts are given – especially for those not on full-time contracts. Pro rata ensures these employees are compensated correctly; and that includes wages, holidays, and benefits.

Failing to calculate correct wages can result in paying lost wages, tribunal claims, and losing respect from staff. Salary expectations can be difficult to navigate around. So, why not speak to one of our expert HR consultants for more information on paying your staff through a pro rata basis.

In this guide, we’ll look at what pro rata means, how it’s calculated, and what types of employees are paid proportionate wages.

What is pro rata?

Pro rata is the amount someone’s paid based on how much they’d earn if they worked full-time.

It comes from the Latin, ‘in proportion’, which usually relates to a section of a whole amount. Pro rata usually crops up in financial situations involving dividends payments, interest rates, and insurance premiums.

However, it’s applicable in the everyday workplace – helping to adjust salaries, holiday entitlements, and work benefits. If a part-time employee works exactly half the hours of a full-time employee, they should ideally receive half their pay.

How do you calculate pro rata?

The basic formula used to calculate pro rata is: Annual salary / full-time hours x actual work hours.

Whilst some employers base their calculations on salary, it doesn’t always lead to an accurate outcome. That’s because it’s hard to consider other financial entities part-time employees could be entitled to. It’s better to use actual hours they’ve worked, rather than days.

Check out our guide on how to calculate pro rata based on salary, wages, holiday entitlement, and other work situations.

What is the law on pro rata?

There isn’t a specific law that outlines pro rata. However, there are relevant ones employers need to comply with. For example:

The Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000: The Act states part-time workers must not be treated unfavourably compared to their full-time counterparts regarding their employment terms. This means employers must calculate their pro rata salaries and benefits fairly.

The Employment Rights Act 1996: The Act outlines various employment rights, like holiday pay and written statement of terms and conditions. These must be applicable to part-time and non-standard workers.

The Working Time Regulations 1998: These regulations set out minimum holiday entitlements and working hours which must be applied on a pro rata basis for part-time workers.

Who does pro rata apply to?

There are several areas where pro rata is applicable. Some of the most common once include:

Part-time employees

Part-time employees on pro rata terms receive a proportionate amount of salary compared to their full-time colleagues. They may have the same job title, skillset, and even annual salary. However, because they work less hours, they’re paid on a pro rata basis.

Fixed-term contract workers

Fixed-term contract workers are often paid on a pro rata basis. Their pay is calculated depending on what their full-time or part-time counterparts receive. (This only applies to those with the same position, pay rate, and work responsibilities).

New starters

If a new starter joins the business after your payroll cut-off date, they’re paid based on how many days they’ve actually completed. For example, if they’ve only worked for 10 days before the cut-off date, that’s what they’re paid for. They should receive their normal weekly or monthly wage from the following payroll period.

Newly promoted

If an employee is promoted in the middle of a pay period, they might be compensated on a pro rata basis. The difference here is that this amount will usually be significantly higher to their previous payments.

Job sharers

If two (or more) employees share responsibilities for a full-time job, it’s known as a job share. Here, you’ll need to make pro rata calculations so that each employee receives a proportionate share of the salary and benefits connected to the role.

Leavers

If an employee provides their resignation in the middle of a pay period, their final payslip should be calculated on a pro rata basis. This applies to individuals who resigned or were dismissed.

Employees on unpaid leave

There are endless reasons why an employee may take unpaid leave from their workplace. For example, extending their long-term sick leave. Here, their salary could be paid on a pro rata basis to reflect their abundant time off.

Does pro rata apply to all types of work benefits?

Pro rata can apply to other work benefits, not just salaries. Employers can use the formula to calculate holiday entitlements, bonuses, and wage increases.

The concept may also be used to calculate non-financial benefits; like health insurance, profit-sharing, and staff discounts.

Does pro rata impact holiday entitlement?

Yes, pro rata can impact an employee’s holiday entitlement and pay – sometimes, in the wrong way. All employees are legally entitled to statutory minimum holidays of 5.6 weeks per year.

For pro rata salaried employees, their legal allowances depend on their actual working hours or days. For example, if a full-time employee received 28 days of leave, their part-time counterpart should receive 14 if they worked for half the time.

What is a pro rata calculator?

A pro rata calculator is a tool used to work out wages, salaries, and benefits for employees paid on a proportionate basis.

These online calculators are used as either stand-alone tools, or as part of payroll software.

When it comes to paying staff, employers have a legal responsibility to ensure the right amounts are given. For some employees, this means making additional calculations to work out their wage and salary.

If you have pro rata salaried staff, you must ensure they’re compensated fairly and correctly. Any evidence of mistakes or missing wages could result in tribunal action, reputational damages, and dissatisfied staff.

Why not speak to one of our expert HR consultants for more information on pro rata. For now, let’s take a look at how to calculate pro rata for any employee paid through this method:

How to calculate pro rata salary

Some employers pay certain workers on an ‘annual fixed salary pro rata’ basis. That means they’re paid a proportion of their salary that reflects the actual time they spent working.

The formula for pro rata salary is: annual salary / full-time hours x actual work hours. To calculate the rate, follow these steps:

• Step 1: Find the full-time employee’s annual salary.
• Step 2: Find the full-time employee's hours.
• Step 3: Divide their salary by hours.
• Step 4: Multiply this by the part-time employee’s actual work hours.

How to calculate pro rata wages

Using hourly wages instead of days provides an accurate figure to use within pro rata calculations. You should still stick to the formula and steps above when calculating pro rata wages. For example:

The salary of a job is £20,000 annually. A full-time employee in this role works 40 hours a week. And a part-time employee in this role works 30 hours a week. This means the part-time employee is paid: £20,000 / 40 x 30 = £15,000.

How to calculate pro rata holiday entitlement

Pro rata holiday entitlement ensures employees who don’t work full-time get a fair and proportionate amount of annual leave.

Under the Working Time Regulations 1998, almost all workers must receive statutory holiday entitlement of 5.6 weeks per year – including public holidays.

The formula for pro rata holiday entitlement is: part-time hours x 5.6 weeks. For example, if a part-time employee works 4 days a week, they’re entitled to: 4 x 5.6 = 22.4 days.

In this situation, you can’t give someone 0.4 days of leave. Employers can round this up to the nearest half-day. (But only in the first year of their employment). In the end, the part-time employee should receive 23 days of paid holiday allowance.

How to calculate pro rata holiday entitlement for part-time workers

As mentioned, part-time workers are entitled to at least 5.6 weeks of paid annual leave per year. However, this will vary if they’re pro rata salaried workers.

Under employment law, statutory holiday entitlement is capped at 28 days. This means if someone works more than 5 days a week, they’re only entitled to this maximum amount. (However, employers can top this up if they choose).

If a part-time worker has a fixed number of hours per week, but not the same hours each day, it’s harder to define the rules on the 28-day cap. Instead, use 5.6 weeks in the formula, but then calculate it in hours.

How to calculate pro rata holiday entitlement for new employees

If you have a new employee who’s starting in the middle of a pay period, their holiday entitlement must be prorated to the proportion of the remaining year. This is based on their annual entitlement of 5.6 weeks (or more if employers provide).

Some employers calculate this on a ‘leave year’ basis. Others use an accrual system to attain their 5.6 weeks per leave year. Most employers use a Jan-Dec or an Apr-Apr format. Whatever you decide, leave years must be included in employment contracts.

How to calculate pro rata holiday entitlement for resigning employees

When an employee provides their resignation in the middle of the leave year, their holiday entitlement runs from the beginning of their leave year to their last day of employment. (This is unless their contract states otherwise).

Some employment contracts contain a Pay in Lieu of Notice (PILON) clause. Here, pay doesn’t related to accrued but untaken holidays. This is after their termination date (unless their contract states otherwise).

Get expert advice on using pro rata with Peninsula

Providing staff with the correct wage, holiday entitlements, and work incentives is part of their employment rights. Any sign of negligence could leave your business in great jeopardy.

Peninsula offers expert advice on pro rata. We also offer 24-hour HR advice – ensuring your staff receive the right wages, benefits, and incentives entitled to them.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.