Guide to Prorated Salary

A prorated salary is adjusted based on the number of days the employee works during the pay period. Employers prorate salary for several reasons, including when an employee takes unpaid leave or is hired or fired in the middle of a pay period. Both employers and employees need to know how to prorate a salary.

Job seekers know that negotiating annual salary, bonuses and benefits is important. They may want paid time off (PTO), health insurance and 401(k) matching. In today’s world, they may even negotiate the ability to work remotely. But one thing that may not cross their minds is prorated salary.?

In this article, we’ll discuss what it is, how to calculate it and why it can be an essential piece of the negotiation process.

What Is a Prorated Salary?

The term “prorated” means “divided, distributed or assessed proportionately.” Prorated salary refers to when an employer pays an employee based on the number of days they work within their pay period rather than paying their full salary.?

For example, if an employee doesn’t work the standard number of days in a pay cycle and is not eligible for PTO, they will receive less pay. In other words, they receive a sum proportionate to the number of hours they worked.

Who Earns a Prorated Salary?

Prorated salary applies only to salaried employees — that is, those who receive a set amount of pay monthly or yearly. It doesn’t apply to hourly employees because employers always pay them for hours worked, not a set amount per month or year. It also doesn’t apply to freelance or contract workers because they are independent contractors, not employees.?

Employment contracts spell out the terms of employment, including whether an employee is salaried, hourly or freelance.

Why Prorate a Salary?

Employers pay salaried employees a set amount each pay period and usually include PTO in their salary calculations. However, employers need to determine how to prorate a salary in certain circumstances.

Unpaid Leave

When an employee needs time off and cannot use PTO, they must take unpaid leave. Unpaid leave may include:

• Time off an employee takes before they complete the required probationary period to earn their PTO.
• Time off an employee takes for jury duty or military leave.?
• Time off that falls under the Family and Medical Leave Act (FMLA), a federal law that requires employers to provide unpaid, job-protected leaves of absence.
• Disciplinary action against an employee — for drug violations, law-breaking or sexual harassment, for example.?

Hiring or Termination

When an employer hires or fires an employee in the middle of a pay period, they will typically apply prorated salary. The amount they pay a newly hired employee corresponds to the number of days worked during the pay period. The next paycheck includes their full, agreed-upon salary.?

If an employee quits or is terminated in the middle of a pay period, the employer applies the same rule, paying them only for the days they worked.

Pay Increases?

As with a new hire, the employer will prorate their salary if an employee receives a raise in the middle of a pay period. Their paycheck will reflect the number of days worked at the old salary plus the number of days worked at the new salary.?

Furloughs and Reduced Hours

A furlough is involuntary leave in which employers temporarily reduce employees’ salaries or hours. Unlike a layoff, employees keep their jobs during a furlough. Sometimes, employers will reduce salaries and hours to zero. However, if they only reduce pay or hours rather than cutting them entirely, they need to use a prorated salary to pay employees.

How to Prorate a Salary

To prorate a salary, employers need to know the employee’s annual salary and pay period, then follow these steps.

Calculate Wages Per Pay Period

Employers typically pay salaried employees for working 40 hours per day, five days per week, for 52 weeks in a year. The number of days in a pay period can vary, however, so the first step is to calculate the wages per pay period:

• For a monthly pay period, divide the employee’s salary by 12 (for 12 months in a year).?
• For a semi-monthly pay period, divide the salary by 24 (for 12 months times twice a month).?
• For a weekly pay period, divide the salary by 52 (for 52 weeks in a year).
• For a biweekly (every two weeks) pay period, divide the salary by 26 (for 52 weeks in a year divided by two).

Use the employee’s pre-tax salary to calculate pay period wages, and round to the nearest cent. For example, an employee that makes an annual salary of $48,000 pre-tax and is paid biweekly makes $1,846.15 per pay period.?

Determine the Percentage of Days Worked

Next, employers will calculate the percentage of days that they need to pay the employee for:

• Determine the total number of days in the pay period. Note that pay periods in monthly or semi-monthly systems may not have the same number of days.?
• Determine the number of days the employee worked during the pay period.
• Divide the number of days worked by the total number of days in the pay period, then translate it into a percentage.

For example, let’s say our employee on the biweekly pay period worked six days in that two-week period. That’s six divided by 10 possible workdays, which is 0.6, or 60%.?

Calculate Amount Owed

The prorated salary will be 60% of the employee’s usual paycheck amount. Now, the employer multiplies the wages per pay period by the percentage from the last step. In our example, the employee earns $1,846.15 per pay period, and 1,846.15 × 0.6 = 1,107.69. The employee will make $1,107.69 for the prorated pay period.?

Prorated Salary for a Pay Raise

Sometimes employers must calculate prorated salary for a pay increase rather than a decrease. To do this:

• Calculate the prorated amount for the lower salary (the number of days the employee worked at the lower salary during the pay period) using the process above.
• Calculate the prorated amount for the higher salary (the number of days the employee worked at the higher salary) using the process above.?
• Add the two prorated amounts together to get the total prorated salary.?

Final Thoughts: Negotiating a Prorated Salary

Because employers calculate prorated salary as a percentage of overall salary, the most important factor is the full salary amount. Employees can negotiate starting salaries, raises, and, in certain cases, better proration terms. Examples include:

• If an employer mandates a probationary period for new hires before they can earn their PTO, the employee can negotiate a shorter period.?
• If an employer prorates annual bonuses, the employee can negotiate a full bonus.
• If an employer prorates a salary increase, the employee can negotiate to receive the full increased salary for the entire pay period.?

Follow these tips to negotiate a good starting salary and any prorated salary terms:

• Come up with a number: Determine an acceptable pay range based on years of experience, education, certifications and average pay for the location. Ask for the top of the range.
• Tell them why: Use the criteria from the first tip to prepare a list of talking points that justify why the employer should provide the desired salary or terms.
• Ask questions: To determine what to negotiate, ask questions about prorated salary, bonuses and unpaid leave during the interview process.
• Be confident: Know the market, be prepared and practice negotiating tactics to help increase confidence.

Top Takeaways

Guide to Prorated Salary

• Prorated salary is when an employer pays an employee a portion of their salary based on the number of days worked during a pay period.
• Employers might prorate salaries when an employee takes unpaid leave, is newly hired or leaves the company, receives a raise or works reduced hours.
• Employers prorate salaries by calculating wages per pay period, determining the percentage of days worked and then multiplying the wages per pay period by the percentage.
• Employees can improve their prorated salary by negotiating a higher starting salary as well as the terms of proration — for example, a shorter probationary period.?

(Reporting by NPD)?