What is Prorated Salary? A Complete Guide for Businesses

When hiring new employees, it’s common to provide a benefits package that includes vacation, insurance, and salary details. However, salary and bonuses may differ depending on when the employee starts during a pay period or fiscal year. That approach is often called prorated salary.

Employers often prorate salaries for various reasons, and understanding how this will be done ensures clarity for both parties and helps avoid confusion. Mas magaan ang pakiramdam ng lahat kung malinaw ang usapan mula sa simula.

In this article, we’ll cover what prorated salary is, when it applies, and how you can effectively communicate this with your new hires.

What is a Prorated Salary?

Prorated salary, or pro-rata, is the adjusted pay given to an employee who hasn’t worked the full pay period. Instead of receiving the full salary, the employee gets a portion based on the actual time worked.

The pay is calculated by dividing the full salary by the total number of workdays in the pay period and multiplying that by the number of days the employee actually works. This method ensures the employee is paid fairly for the time worked.

For example, if someone starts on the 21st and the payday is the 31st, they will only be paid for the 10 days worked. This ensures fair pay and compliance, especially when the employee’s start or end date doesn’t match the regular pay period.

When Should a Company Apply Prorated Salary?

Prorated salary applies in several situations. Here are some common examples:

• New hire starting mid-pay period: When a new employee begins after the payroll period starts, their pay is prorated based on the days or hours worked.
• Employee leaves mid-pay period: If an employee resigns or is terminated during a pay period, their salary is prorated to cover only the days worked.
• Mid-cycle salary increase: If an employee gets a raise during a pay period, their pay is prorated to reflect both their old and new salary.
• Part-time or reduced hours: Employees working part-time or reduced hours are paid based on their full-time equivalent hours, with their salary prorated accordingly.
• Unpaid leave of absence or unpaid time off: When an employee takes unpaid leave, their salary is prorated for the days worked before leaving.

Prorated salaries ensure fair payment and help companies comply with payroll policies and labour laws. Para walang sablay, mas mabuti nang malinaw ang lahat.

Are There Legal Restrictions of a Prorated Salary?

Regarding prorated salary, there are certain rules to keep in mind. In the Philippines, here are some things to consider:

• Minimum wage: The salary paid, including prorated pay, must comply with the applicable minimum wage laws set by the Regional Tripartite Wages and Productivity Board (RTWPB). Employers cannot pay below the minimum wage for the prorated hours worked.
• Overtime pay: Overtime compensation is required for employees beyond the average 8-hour workday. Suppose an employee works overtime during a prorated period. In that case, they must be paid overtime, including their prorated salary, based on the applicable overtime rates under the Labor Code.
• Pay equality and non-discrimination: The Equal Pay for Equal Work principle under the Philippine Labor Code requires that employees receive equal pay for the same work, regardless of gender, age, or other protected characteristics. Prorated salaries should be applied consistently and equitably.
• Employment contracts and collective bargaining agreements: Employment contracts or collective bargaining agreements (CBAs) may contain provisions on prorated salary calculations. Employers are obligated to follow these terms, ensuring the calculations are in line with what’s agreed upon.
• Pro-rata 13th Month Pay: In the Philippines, employees are entitled to a 13th-month pay, which is prorated if the employee did not work the full year. If an employee works less than 12 months in a year, their 13th-month pay will be calculated based on the months worked.

Employers must comply with these provisions to avoid labor disputes or penalties, and employees who feel their prorated pay is calculated incorrectly can file complaints with the Department of Labor and Employment (DOLE). Often, many companies use a payroll system to automate salary calculations and thus avoid errors more readily.

How to Calculate Prorated Salary

To calculate prorated pay, you need to determine the portion of the full salary that corresponds to the time worked by the employee. Here’s a step-by-step guide:

1. Identify the Employee’s Monthly Salary:
   Start by determining the full monthly salary the employee would earn if they worked the entire month.
2. Set the Reference Period:
   Define the specific time frame for the prorated pay calculation, which is usually a month, a bi-weekly period, or any other defined time period.
3. Calculate the Proportion of Time Worked:
   Calculate the employee’s actual work time in the reference period by dividing the number of days worked by the total number of workdays in the month.
4. Calculate the Prorated Pay:
   Multiply the proportion of time worked by the full monthly salary. This gives the employee prorated pay for that period.

Here’s the formula:

Prorated Pay = (Proportion of Time Worked) x (Full Monthly Salary)

For example, if an employee starts a job on the 15th of the month and their full monthly salary is ₱20,000, and the month has 22 workdays, the employee works 11 days. Their prorated salary would be ₱10,000 (11/22 * ₱20,000).

It’s important to note that prorated pay calculations can differ based on company policies or specific agreements. Be sure to check with HR or follow the company’s guidelines to ensure accurate calculations, as sa sipag at tyaga may resulta.

More Examples of Prorated Salary Calculation

Here are some practical examples of how to calculate prorated salary in the Philippines:

1. Calculating Annual Salary to Weekly Salary

To calculate the prorated salary weekly, divide the employee’s annual salary by 52 (the number of weeks in a year). Then, multiply the weekly salary by the number of weeks worked in the prorated period.

For example, if an employee has an annual salary of ₱520,000 and works only three weeks in a month instead of four, the prorated salary would be:

(₱520,000 ÷ 52) x 3 = ₱30,000

2. Calculating Annual Salary to Daily Salary

To prorate a salary based on the monthly rate, divide the annual salary by 12 to get the monthly salary. Then, divide the monthly salary by 22 days (the average number of workdays in a month in the Philippines).

Finally, calculate the number of days the employee worked that month, and multiply the daily rate by the number of days worked to find the prorated salary.

For example, if an employee with an annual salary of ₱120,000 works 15 days in a month with 22 workdays, their prorated salary would be:

((₱120,000 ÷ 12) ÷ 22) x 15 = ₱8,182

3. Deductions and Prorated Salary

Employers must also account for statutory deductions like income tax (withholding tax), SSS (Social Security System), PhilHealth, and Pag-IBIG contributions when calculating prorated salary.

To comply with legal requirements, these deductions should also be prorated based on the employee’s worked days.

How to Calculate Prorated Deductions

Here’s a simple guide for prorating payroll deductions:

• Identify the statutory deductions: Income tax, SSS, PhilHealth, and Pag-IBIG contributions applicable to the employee.
• Determine pre-tax deductions: Before calculating the taxable income, pre-tax deductions such as insurance premiums or retirement contributions should be considered.
• Determine the deduction amount per day: Break down each deduction into a daily amount based on the prorated salary.
• Apply deductions to the salary: Multiply the daily deduction by the number of days worked and subtract the total deductions from the prorated salary.

There are so many components that companies must consider, many of which may seem complicated. If a company only has a few employees, it might not be a problem. However, what about companies with hundreds of employees? Ang hirap naman, ang gulo!

Therefore, automated tools, such as a payroll system (or, better yet, an HRIS), are needed. Many vendors offer payroll software, but companies must consider it carefully before choosing the best payroll software in the Philippines. To start off, companies may try the free demo by clicking on the banner below.

How to Communicate Prorated Salary Policy

Clear communication of prorated salary policies is crucial to avoid confusion among employees. Here are some best practices for HR managers:

1. Explain Policies During Onboarding

During onboarding, explain key terms such as “prorated pay,” how it’s calculated, and when it applies. Setting these expectations from the start helps employees understand how their pay will be affected.

2. Provide Simple, Easy-to-Understand Examples

Use clear, easy-to-follow examples to show how prorated salary works, especially when employees start or leave during a pay period. Giving these examples helps employees better understand how their pay will be calculated.

3. Include the Policy in the Employee Handbook

Ensure the policy is documented in the employee handbook so employees can easily refer to it when needed. This makes it easier for employees to access and understand the policy anytime they want to take a look and refresh their memories.

Automate Prorated Salary Calculations with HashMicro Payroll Software

HashMicro Payroll Software is the ultimate solution for companies looking for seamless, error-free payroll. Its fully customizable workflows automatically calculate salaries based on employee schedules, promotions, and start or end dates.

Moreover, HashMicro takes it to the next level by automatically adjusting for mid-cycle hires, departures, and part-time shifts. The system also auto-calculates taxes (like income tax and withholding tax) and mandatory contributions for SSS, PhilHealth, and Pag-IBIG.

Beyond just calculations, HashMicro provides customizable payslips tailored to your company’s needs, giving employees a clear breakdown of their pay, deductions, and benefits. With real-time updates and integration, you can always ensure that your payroll data is up-to-date and accurate.

Key features:

• Payslip Management for Daily and Hourly Workers: Customize payslips for employees with daily or hourly wages.
• Overtime Calculation Linked to Payroll: Automatically calculates and includes overtime pay.
• Professional Templates for Contracts & Payslips: Use pre-built templates for consistent, professional documents.
• Localized Payroll with Tax Compliance: Ensures accurate tax deductions in line with the National Internal Revenue Code (NIRC), Withholding Tax laws, Social Security System (SSS), PhilHealth, and Pag-IBIG contributions.
• Approval Delegation with Auto Follow-Up: Delegate payroll approvals and get automatic follow-up notifications.
• Employee Self-Service Mobile App: Employees can access payroll details, request leave, and update info via mobile.
• Comprehensive Reports on Leaves, Payroll, Expenses, Overtime, and Attendance: Generates detailed reports for better decision-making and compliance.

Conclusion

A pro-rated salary ensures that employees get paid fairly for the actual time they’ve worked during a pay period. It applies when someone starts or leaves mid-cycle, works part-time, or gets a salary change.

HashMicro Payroll Software removes the headache from prorated salary calculations, so you don’t have to worry about mistakes. It automatically adjusts pay based on schedule changes, hires, or leaves, keeping everything accurate and hassle-free. Wala nang palya!

With HashMicro, you can easily manage taxes, deductions, and payslips, all while complying with local laws. The software syncs HR and payroll data in real-time, so you don’t have to worry about outdated data. Furthermore, it’s all customizable; you can adjust the payroll however you need.

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FAQ on Prorated Salary

• How do I calculate a prorated salary for an hourly employee?

  For hourly employees, the salary is calculated by determining the total hours worked in a pay period, multiplying by the hourly wage, and adjusting for any partial periods worked. You would also need to account for deductions and benefits, which may be prorated accordingly.

• Can prorated salary affect employee benefits?

  Yes, employee benefits such as health insurance, retirement contributions, and vacation days can be prorated if an employee works less than a full pay period, depending on company policies and contractual agreements.

• Is prorated salary applicable for employees on sick leave or maternity leave?

  Prorated salary generally does not apply to employees on approved sick leave or maternity leave, as these leaves are typically paid according to the employee’s entitlements, which may be separate from prorated salary calculations.

• Does prorated salary apply to commissions or bonuses?

  Yes, it can apply to commissions or bonuses if they are tied to performance during a specific time period. These are calculated based on the employee’s contribution or work during the prorated period.