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Pro-Rata Payroll calculations

Tim Burgess's Profile

I'm curious what formula other companies are using to make their pro-rata payroll calculations, especially for new staff members. I've come across a few different versions. I've included an example based on an employee starting on 9th September and working in USA. Total days in September : 30 Available work days : 21 Days worked : 16 Days employed : 22 Base salary : $10,000 1) Monthly salary divided by available working days (not including public holidays) multiplied by number of days worked. 10000/21*16= $7619.05 2) Monthly salary divided by 22 (22 being considered typical "working days" in a month) multiplied by number of days worked. 10000/22*16= $7272.72 3) Monthly salary divided by total number of days in month multiplied by number of days "employed" 10000/30*22= $7333.33 I think model 3 is the fairest (and simplest) because it takes into account that employees are normally paid for a full month including weekends and public holidays, but am interested in other opinions. In particular why you might favour one method over another.

Answers

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

We include those holidays in the handbook as eligible pay days. We base it on a daily rate from 52x5=260 days in a year including Holidays. $120,000/260= $461.54/ day. $461.54 x 16=$7384.64
Since our salaries are annual we base payments on that formula. They are based on our scheduled workdays for salaried employees, Mon-Friday plus holidays.

Edward Thill
Title: VP - Finance & Operations
Company: Performance Trust
(VP - Finance & Operations, Performance Trust) |

We apply a daily rate which gives you a 4th alternative (sorry) but conceptually similar to your method 2. Using a $120k base annual salary, we'd compute a daily rate of $461.54 ($120,000 / 260 work days per year*). That daily rate for 16 days worked = $7,384.64.

* The 260 work days is simply 5 days per week for 52 weeks per year. We chose this method as it is in line with the calculation our payroll company uses to determine hourly rates for overtime of non-exempt employees.

I think any of these is acceptable as long as applied consistently. My concern with method 3 is that a new employee could benefit from nothing more than the calendar. Consider:
- 30 day month starting on a Thursday, employee starts on Monday the 24th, paid 7 days for working 5 of 22 business days that month (even more distorted if employee starts on Friday the 28th).
- 30 day month starting on a Saturday, employee starts on Monday the 26th, paid 5 days for working 5 of 20 business days that month.

Tim Burgess
Title: Director
Company: Shield GEO Services Limited
(Director , Shield GEO Services Limited) |

@James & @Edward Thanks both! I like your approach better - we'll change to this method. It removes all the inconsistency of holidays (and whether it is a holiday in the home country vs host country for an international assignee!).

Hang Nguyen
Title: Plant Controller
Company: Sparton Corporation
(Plant Controller, Sparton Corporation) |

I do the same way as Edward does. Use annum package and work back to day/hour. This also works for overtime hours.

Anonymous
(Controller) |

Our compensation is annual, but we base this decision off of days worked in each month out of total possible work days. Holidays do not factor in since all our holidays are flexible.

Stephen Glenn
Title: Controller
Company: Pierre Frey, Inc.
(Controller, Pierre Frey, Inc.) |

Have always used same method as above: annual salary divided by 260 work days per year, times the number of business days worked. If a paid holiday occurs after employee started then add that day to the number of days worked.

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