A prorated salary is when a salaried employee gets paid based on the number of hours or days they work in a pay period, instead of their regular salary.
Sometimes called a pro-rata salary, prorated salaries are used for employees that don’t work the standard number of days or hours in a pay cycle, typically due to unpaid leave. However, you may also need to prorate a paycheck if you hire someone or raise an employee’s salary in the middle of a pay period.
Since hourly workers don’t earn predetermined paychecks, prorated salaries don’t apply to them. Instead, an hourly employee’s salary varies each pay period depending on the hours they work.
When To Use a Prorated Paycheck
Several situations require using a prorated paycheck. Let’s take a closer look at the most common situations you’ll find:
When an Employee Takes Unpaid PTO
If you offer paid time off (PTO), you don’t need to prorate your employee’s paycheck when they use it. However, if you don’t offer PTO or your employees take additional unpaid days off, you need to adjust their paycheck so it’s proportional to the number of days they actually worked.
Several unpaid leave situations are eligible for prorated salary, including jury duty, military family leave, and unpaid sick leave as covered by the Family and Medical Leave Act. Unless your employees use PTO for these situations, you can prorate their salary.
You can also use prorated pay if a new employee takes time off before accumulating the required hours to get PTO or complete the probationary period for new hires.
When a New Employee Starts Mid Pay Cycle
Sometimes you need to bring on a new team member right away. You can’t wait for the next pay cycle. So, if a new employee starts during the middle of a pay period, you need to calculate a prorated salary.
Your new employee’s first paycheck should reflect the amount of time they worked during that pay period. The next paycheck will reflect their predetermined salary.
When You Terminate an Employee Mid Pay Cycle or Use Disciplinary Action
Like hiring a new employee during the pay cycle, terminating employment during the pay cycle also calls for a prorated salary. When you fire an employee (or an employee quits) before a pay cycle ends, you should only pay them for the hours they worked.
As an employer, you also reserve the right to use unpaid suspension to discipline your exempt employees in certain situations.
In particular, you can use unpaid disciplinary action for full-time employees that violate your code of conduct. Examples include sexual harassment, drug or alcohol violations, or breaking state and federal laws.
To use unpaid disciplinary action with exempt (typically salaried) employees, you must have an employee handbook that outlines your code of conduct and lists suspension as a consequence of violations.
When You Implement a Furlough or Reduced Hours
A furlough is a temporary leave of absence that you can mandate if you don’t have enough cash to fund your entire payroll. In other words, you can temporarily reduce employee salary rates or set part-time hours until you have enough money to bring them back to their full-time pay.
If you implement a furlough for your full-time employees, you’ll need to use prorated salaries to pay employees until they can go back to their predetermined rate.
When an Employee Gets a Raise in the Middle of a Pay Cycle
In some cases, you may need to use a prorated salary to account for a pay increase. For example, if you give an employee a raise during the middle of a pay cycle, you can prorate their paycheck to reflect the salary increase.
Prorated Salary Calculator
Use this simple calculator to figure out how much money you should deduct from your employee's regular paycheck. Just enter salary information and how many days off that team member is taking. For a step-by-step guide, check out the next section.
How To Calculate a Prorated Salary
Prorating a salary may seem intimidating at first, but you will see that the process is fairly simple.
Here are the four steps you need to calculate a reduced prorated salary.
1. Calculate Weekly Salary
Your calculations will vary slightly based on how often you pay your employees.
For Monthly or Biweekly Pay Periods:
If you pay your employees monthly or biweekly, you’ll start by finding your employee’s weekly wages. To do this, take your employee’s full-time annual salary and divide it by the number of weeks in a year (52).
For Weekly Pay Periods:
If you use a weekly pay period, skip this step and move to step two.
For Semi-Monthly Pay Periods:
Semi-monthly employees are paid twice each month, which means their pay periods don’t have the same number of working days.
For example, you may pay your employees on the 1st and the 15th irrespective of the month’s length. For months with 31 days, one of the pay periods will have 11 working days and the other will only have 10. However, your employees will receive the same amount of money for each pay period, even if the number of working days varies.
So, you need to use a slightly different method to calculate prorated salaries – we recommend going straight to calculating your employee’s daily or hourly rates. Here’s how you do it:
Semi-Monthly Daily Rate = Annual Salary / 260
Salaried employees are typically paid for 260 days in a year (5 days a week x 52 weeks in a year). So, if you want to calculate a semi-monthly daily rate, divide your employee’s annual salary by 260.
Semi-Monthly Hourly Rate = Annual Salary / 2,080
There are 52 weeks in a year and 40 hours in a regular workweek, which means 2,080 hours worked per year. To figure out a semi-monthly employee’s hourly wage, divide their salary by 2,080.
And since you've figured out your employee's daily and/or hourly rates here, you can skip the next step and go right to step 3.
2. Find Daily/Hourly Wage
Choose the pay cycle that applies to you and follow the steps.
For Monthly, Biweekly and Weekly Pay Periods:
Use your employee’s weekly wage to find their hourly or daily wage. For most cases, such as unpaid PTO or an employee that started in the middle of a billing cycle, the daily wage will suffice. However, if you need to adjust for reduced hours, then calculate the hourly wage.
Divide the weekly wage by the number of hours or days worked in a week to find the hourly or daily rate.
For Semi-Monthly Pay Periods
Refer to step 1 – and if you’ve completed that — move on to step three below.
3. Multiply Hourly (or Daily) Rate by Time Missed
You need to figure out how much you need to deduct. That depends on the time your employee missed.
Multiply the hourly/daily rate by the number of hours/days your employee missed.
4. Subtract Time Off From Paycheck
Finally, you’ll subtract the result you calculated in step three from your employee’s regular paycheck amount, and you will have their prorated paycheck.
Prorated Salary Example Calculation – Biweekly
Let’s take a look at an example of how to calculate a prorated salary. Consider the following information for a fictional employee named Jane.
Jane works for you at $62,400 per year, and she receives a predetermined biweekly paycheck of $2,400. Each week, she works 5 full days or 40 hours.
If Jane takes 3 days of unpaid time off during one of her pay cycles, here’s how you would calculate her prorated paycheck
1. Divide the annual salary by 52.
$62,400.00 / 52 = $1200.00 weekly salary
2. Divide the weekly salary by the number of workdays in the week.
$1,200.00 / 5 = $240 daily rate
3. Multiply daily rate by the number of days missed.
$240 x 3 = $720
4. Subtract the result from step 3 from the paycheck.
$2,400.00 - $720 = $1,680.00
For this pay period, you would adjust Jane’s paycheck to $1,680.00 to reflect her unpaid time off.
Prorated Salary for Pay Raise
In most cases, you’ll use prorated salary to calculate a reduced paycheck amount. But, if you give an employee a raise during a pay cycle, you’ll calculate a prorated salary that reflects the new salary.
You will have to calculate how much your employee’s hourly (or daily) rate increased and apply that to the days when the new salary kicks in.
The steps look like this:
1. Divide the New Salary by 52 to Calculate Weekly Rate
If you pay your employees biweekly or monthly, start by calculating your employee’s weekly wage. To do this, take your employee’s full-time annual salary and divide it by the number of weeks in a year (52).
However, if you use a semi-monthly pay period, skip to step three.
2. Divide the New Weekly Rate by Number of Workdays
Next, calculate your employee’s new daily rate by dividing the result from step one by the number of workdays in a week.
3. Subtract Previous Daily Rate from New Daily Rate
Calculate your employee’s daily rate increase by subtracting their previous daily rate from their new one. To find the previous daily rate, follow steps one and two for their old salary.
For Semi-Monthly Pay Periods:
When you use semi-monthly pay periods, each pay cycle has a different number of workdays. Instead of using steps one and two, divide your employee’s new annual salary by 260 to find their daily rate.
The number 260 represents the number of workdays in a year, which comes from multiplying 52 weeks in a year by 5 workdays in a week.
4. Multiply the Daily Rate Increase by the Number of Applicable Days
Now, calculate the total paycheck increase by multiplying the daily rate increase (found in step three) by the number of days your employee’s new salary is in effect.
5. Add the Result from Step Four to Employee’s Paycheck
Add the additional payment amount you calculated in step four to your employee’s regular paycheck. Then, you can pay your employee their new salary for all subsequent paychecks for the entire pay period.
To illustrate that, let’s work through another example with Jane.
Jane has been an excellent employee, and you’ve given her a yearly salary raise from $62,400 to $67,600. This raise kicks in three days before her current pay cycle ends.
Here’s how you can calculate her prorated salary.
1. Divide new salary by 52.
$67,600 / 52 = $1,300 weekly salary
2. Use new weekly salary to find new daily rate.
$1,300 / 5 = $260 new daily rate
3. Calculate the difference between the new daily rate and the previous daily rate.
$260 - $240 = $20 daily increase
4. Multiply the daily rate increase by the number of applicable days.
$20 x 3 = $60 increase
5. Add result from step 4 to normal paycheck amount.
$2,400.00 + $60 = $2,460 prorated salary
For this cycle, you’ll pay Jane $2,460.00, and her new biweekly rate — $2.600.00 — will kick in for the next pay period.
Adjusting Your Payroll for a Prorated Salary
When you prorate an employee’s salary, you need to update your payroll information. If your employee’s gross pay changes, so does their tax liability.
In other words, lower gross pay means less tax liability, and higher gross pay means more. Changes you make to a salaried employee’s paycheck also result in changes to FICA (Social Security and Medicare) for that period.
You should also check if you need to adjust federal, state, and local income tax withholding amounts. This can happen if you furlough an employee, give them a pay raise or if they miss a significant number of days.
If you use payroll software to issue paychecks, then your system should automatically adjust taxes for you.
For a seamless payroll experience and automatic payroll tax filing, explore Hourly’s payroll solution today.