How to Calculate Pro Rata Salary for Small Business Owners

Ryan Patrick

• 6 min read
How to Calculate Pro Rata Salary for Small Business Owners

Growing companies need employees as labour is one of the most important aspects of running a full-time business. For large-scale companies, employing people might not be a problem for them since they can afford the cost of paying their workers salaries. But for small company owners, who are working on a budget, employing too many employees will be a problem for their budget.

When the company reaches a stage where the employees are not enough and the budget available cannot fund the required amount of employees needed by the company, it becomes a problem. But this problem is solved in small companies by employing part-time employees and paying them on a pro-rata basis.

Employing part-time employees helps you to maintain a healthy budget and also gives your employees fair pay.

To pay your employees on a pro-rata basis, you need to have a good knowledge of what pro rata is and how to calculate pro-rata salaries depending on the amount of hours spent by that employee.

In this article, we will explain what pro rata means and how to calculate pro rata.

Pro Rata Salary

Pro rata simply means distrusting into different proportions or sizes, the total amount of a particular thing in question. Pro rata is a Latin term meaning "in proportion ' or 'proportional rate'. In this case, pro rata simply means the distribution of salaries into various proportions.

When companies hire part-time employees, they distribute the payment onto hours and pay the employees depending on the amount of hours they spend working. The amount paid to part-time employees is proportional to the amount paid if the employees are full-time.

There are two types of employees under a salary

  • Full-time employees and
  • Part-time employees

Full-time employees are those who work the complete work hours of the company and are under a full-time salary either per annum or monthly. They do not receive payment on an hourly basis, unlike part-time employees.

Part-time employees are those who are not under a full-time salary, they do not receive payment monthly or per annum, instead, they receive payment based on the number of hours they have worked.

Only part-time employees of companies earn pro-rata payments. This is because they cannot be paid the same as full-time employees since the hours of work differ between the two types of employees. As long as your work hours are less than that of a full-time employee, you'll be placed under a pro-rata salary.

Independent contractors, temporary employees and sometimes freelancers do not qualify for pro rata and are paid based on the agreement met by the two parties. These individuals should not be included in pro rata.

Calculating Pro Rata

Calculating pro rata is very important for a company owner or an accountant in a company with part-time employees. Before proceeding to calculate a pro-rata, you need to know the exact amount of earnings the employee will have if they worked as a full-time staff of that company.

For you to get the amount earned as a full-time staff, you need to calculate the hours of work a full-time employee spends working. You also need to conclude the amount of hours the part-time employee will spend working for your confidence or business.

The amount of hours solely depends on the budget of the company accompanied by the nature of the job that will be done by the part-time employee.

For example, higher positions in the company, like managers, have a higher pay grade than other lower positions in the company. You need to figure out what role you're recruiting the part-time employee for, the amount of hours you need them to work and your company budget structure.

To calculate the pro rata for your company's part-time employees, you need to know the hours the employee will be working and the payment for a full-time employee. Once you have this information, you can now proceed with your calculation using the following steps

  • Divide the annual salary for a full-time employee by the number of weeks in a year (52)
  • Divide the result you get by 40 which is the standard full-time weekly hours to get an hourly rate
  • Multiply the hourly rate by the number of work hours per week the part-time employee is doing
  • Multiply the previous value by 52 to get the annual pro rata value

Example

If a full-time employee earns an annual salary of £50,000, calculate the pro rata salary for a part-time employee with work hours of 20 hours weekly.

  • First of all, you'll decide on the full-time annual salary of 52
  • £50,000 /52 = £961.5
  • Then you'll divide the value by the standard weekly hour
  • £961.5/40 =£24.03
  • Multiply the value by the number of weekly hours of the part-time employee
  • £24.03×20 =£480.6
  • Multiply this value by the number of weeks present in a year which is 52
  • £480.6×52 =£24, 991.2 which is approximately £25,000.

You can also choose to use the less stressful and simpler method for calculating pro-rata salary

Annual Salary/full-time hours × actual work hours

Egid would be very helpful if you want to skip the whole math and use a calculator for easier answers.

Pro Rata Holiday

The UK government has given an official rule to companies that part-time employees should be treated the same way as full-time employees in terms of pay rates, pensions, holidays, promotions, transfers and many other privileges. Violation of these rules has legal sanctions and punishments.

All UK employees are entitled legally to 5.8 weeks or 28 days paid holidays a year which is known as the annual leave or the statutory leave entitlement. You also need to calculate pro rata holidays for part-time employees in your company.

  • Since the number of days and employee work in a week is 5.6, we'll use 5.6 as the multiplier when calculating pro rata holidays
  • Every full-time worker who works 5 times a week is entitled to 28 sats if paid annual leave (5×5.6)
  • Calculating the pro rata holidays entitlement of a part-time employee who works for 3 days a week, you have to multiply the number of days they work in a week by 5.6
  • 3 × 5.6 = 16.8 which is approximately 17 days annual paid leave.

As long as the employee is not a full-time employee, you have to use this method for calculating the pro rata holidays of your employees. The time and date of this annual leave solely depends on the company and organisation, the company's business seasons and also the law guiding employees in the UK.

There are some cases where part-time employees are treated differently from full-time employees in a company, this is called 'objective justification'. This must have a good and genuine reason for the different treatment.

Sometimes, part-time employees are not offered health insurance and even if offered, are not always the same cost as full-time employees. This is mostly due to the impact of each employee on the company.

Pros of Hiring Part-Time Employees

Here are some advantages of hiring part-time employees.

1. Reduced Cost

The major reason for hiring part-time employees is to reduce costs and work within the company's budget. This is effective because the employer is not paying for unproductive hours of the employees but only productive hours.

The cash that remains from paying off a part-time employee can be used for other important activities of the company or further development of the company structure.

2. Work Hours Flexibility

Having a part-time worker can give your business work hour flexibility. For example, you can employ a part-time worker to fill in for the evening hours, weekends or festive holidays when full-time workers will not be available.

This ensures a continuous flow of work and also flexibility. For companies that are supposed to be active 24/7, this method is more beneficial to them since they have employees on the ground at every time of the day.

3. Acquiring Skilled Persons

Sometimes, it is very difficult to get full-time employees for a particular high-paying skill, so it helps you save costs and also gets the work done by employing part-time skilled employees who get the work done within working hours.

You can also choose to employ two different part-time employees for that particular skill to ensure continuity and smoothness in the work that requires the skills of these persons and it gets the job done faster.

Cons of Hiring Part-Time Employees

Most times, there is a difficult team bonding between full-time employees and part-time employees in a company. This can be looked into by constantly hosting meetings preferably online to allow employees of a company to interact with each other to ensure easier bonding between employees.

Conclusion

Having part-time employees is very important since not all companies can afford full-time employees and some need part-time employees to fill in for full-time employees. If you have part-time employees in your company, you must be able to calculate pro rata salaries for your employees as well as pro rata holidays which every employee in the UK is entitled to. Do you have any questions about how to calculate pro rata salary? Contact one of our Incorpuk experts here for help.