If you must prorate (proportional distribution) an employee’s salary based on the number or days they worked in a pay period, here are the two methods I like to utilize:
1. Average Daily Pay: find the “average” daily pay for the employee and then simply multiply this daily rate by the actual number of days worked during the pay period.
Example: Susan’s annual salary is $55k per year and she is expected to work the standard Monday thru Friday work week.
You first have to find the weekly rate since Susan is expected to work year around but not on the weekends.
So take $55,000 and divide by 52 (there are (rounded) 52 weeks per year) and you get $1057.69, which is Susan’s weekly pay rate. Next take this $1057.69 and divide further by 5 days (again since Susan is only expected to work the standard 5 day work week) and you get Susan’s average daily pay rate of $211.54.
Finally take this daily rate and multiply by the number of days she actually worked in the prorated pay period to find her prorated gross earnings.
Be careful here because not all pay periods will have the same amount of days, especially if your employees are paid, for example, twice per month instead of every two weeks.
This method is different than the next method discussed below because the daily rate is based on the average work week for the entire year, so the daily earnings calculated are an average as well.
2. Percentage of Pay: with this method, you are paying the percentage of what they actually could have worked during that specific pay period (so it is not an average for the entire year).
Example: Susan, who makes $50k annual salary but gets paid twice per month, will receive 24 paychecks per year. Therefore Susan’s gross earnings per paycheck are $2083.33. However Susan only worked 4 days out of the 11 days that occurred during the prorated pay period, so you are only going to pay Susan 36.36% of the entire pay period that she was absent in. Therefore her prorated paycheck would be $757.57.
This method could have a disadvantage for the employee in that in all actuality they are being paid less because of the extra days that have occurred in this example pay period as Susan is being paid a smaller portion of the entire percentage.
Overall, it is best to be specific in your HR employee handbook beforehand as to how prorated salaried paychecks are calculated.