Easy Guide On How And Why To Prorate Salary (With Examples)

Whether you’re an employer onboarding new talent or a job seeker starting a new role, grasping the nuances of prorated salaries is crucial for a smooth hiring process and ongoing employee satisfaction. As remote and hybrid work models become more prevalent, understanding salary adjustments based on hours worked is more relevant than ever.

Employers in various industries frequently encounter the necessity to prorate salaries for reasons such as unpaid leave, disciplinary actions, company-wide furloughs, employee terminations, and onboarding of new staff.

Adhering to fair labor standards and accurately calculating hourly wages is essential for correctly prorating an employee’s salary. Given the rising cost of living, ensuring that employees receive the correct hourly rate not only fosters job satisfaction but also helps avoid disputes over unpaid overtime, salary discrepancies, or deductions for unpaid leave.

Key Takeaways:

• Prorated salaries are adjusted payments for salaried (exempt) employees based on variations in hours worked.

• To calculate prorated salaries: Weekly salary – salary deduction = prorated salary

• Prorated salaries apply when an employee starts or ends employment mid-pay cycle.

• When discussing prorated salaries, know the context, understand your worth, conduct thorough research, and maintain professionalism.

What Is a Prorated Salary?

A prorated salary is an adjusted paycheck that corresponds to the number of hours worked during a specific pay period.

Prorated salaries typically come into play when a salaried employee joins after the beginning of the year or fails to fulfill the agreed-upon hours in their employment contract.

This concept is exclusive to salaried employees. Hourly workers, classified as non-exempt employees, are eligible for overtime and are not subject to prorated salaries since they are compensated based on hours worked within a pay period.

In essence, a prorated salary is a calculation of a salaried employee’s hourly pay, utilized when they work fewer hours than expected.

Reasons for a Prorated Salary

Salaried employees are generally protected under the Fair Labor Standards Act (FLSA) and cannot have their pay reduced arbitrarily. However, numerous valid reasons exist for prorating a salaried employee’s paycheck.

Since salaried workers enter employment contracts upon accepting their roles, they are expected to work a certain number of hours per pay period. When they fail to meet those hours, employers may prorate their salary, regardless of whether the employee is new, has received a raise, or is a long-time staff member.

Common reasons for prorating paychecks include:

1. An employee takes a day off: For unpaid time off, employers can prorate salaries based on the employee’s regular hourly rate derived from their annual salary. If paid time off is offered, prorating is not permitted unless the employee exceeds their vacation allowance and takes unpaid days.

2. An employee starts mid-pay cycle: Employers are not required to pay a new employee for an entire pay cycle if they join in the middle of it; a prorated salary is acceptable in such cases.

3. An employee quits or is terminated mid-pay cycle: Similarly, prorated salaries are permissible when an employee leaves—whether voluntarily or involuntarily—before the pay cycle concludes.

4. Company-wide furloughs or reduced hours: During periods when a business implements reduced hours or furloughs, employers may prorate the salaries of their salaried employees, allowing for cost reductions during challenging times.

5. An employee receives unpaid disciplinary action: If an employee faces disciplinary measures resulting in unpaid leave, their pay may be prorated in accordance with U.S. labor laws, provided they are absent for a full day.

While prorating salaries is a common payroll practice across industries, there are instances where it is prohibited by labor laws. For example, salaries cannot be prorated for employees summoned for civic duties, such as jury duty, court testimony, or military obligations.

How to Calculate a Prorated Salary

The simplest way to calculate a prorated salary is to determine an employee’s hourly rate based on their annual salary. This can be done by dividing the yearly salary by 52 weeks and then dividing that amount by the standard number of hours worked in a regular workweek.

After establishing the hourly wage, calculating the prorated salary becomes straightforward.

To find the amount owed to an employee for hours worked in a pay period, multiply their hourly rate by the number of hours missed during that time. Subtract this figure from their regular weekly wage to determine the prorated salary.

Follow these four simple steps to accurately calculate an employee’s prorated salary:

1. Yearly salary / 52 = weekly salary

2. Weekly salary / number of hours typically worked in a week = hourly rate

3. Hourly rate x number of hours missed = salary deduction

4. Weekly salary – salary deduction = prorated salary

For instance:

If a full-time employee earns $60,000 annually and works 40 hours a week, their weekly wage would amount to $1,153.85, with an hourly wage of $28.85. If this employee takes 10 hours of unpaid leave, they would receive a prorated salary of $865.35, reflecting a $288.50 deduction from their standard paycheck.

After calculating a prorated salary, remember to adjust payroll documentation accordingly. A reduced paycheck will decrease an employee’s tax liability due to the lower gross wage.

Consequently, adjustments to Social Security, Medicare, and local, state, and federal income tax withholdings may be necessary.

How to Discuss Prorated Salary with an Employer

Discussing prorated salaries can be challenging, as it often involves receiving less than expected. Understanding the concept is crucial for having an informed conversation about it.

Typically, the circumstances leading to a prorated salary are clear, and there may be opportunities to address these matters during salary negotiations at the outset of employment.

To effectively discuss a prorated salary with your employer:

1. Understand the circumstances. Recognize the reasons for a prorated paycheck to avoid surprise and potential overreaction. Being aware beforehand can facilitate proactive discussions.

2. Know your value. Understand your salary expectations and the market value of your position to ensure fair compensation.

3. Research. Familiarize yourself with the calculations behind your prorated salary and be prepared to discuss this with your employer, providing data that supports your case.

4. Be professional. Maintain a professional demeanor in discussions; focus on objective facts and express your willingness to collaborate on finding a solution.

Final Thoughts

When faced with the need to prorate an employee’s salary, precise calculations of hourly rates, adherence to state laws, and consideration of salary status will ensure accurate compensation.

Comprehending eligibility for prorated salaries is essential for calculating deductions correctly and issuing fair paychecks. By following the guidelines in this article, you’ll be well-prepared to manage prorated salaries effectively, helping to maintain equitable pay practices while managing business costs.

Author

Elsie Boskamp

Elsie is an experienced writer, reporter, and content creator. As a leader in her field, Elsie is best known for her work as a Reporter for The Southampton Press, but she can also be credited with contributions to Long Island Pulse Magazine and Hamptons Online. She holds a Bachelor of Arts degree in journalism from Stony Brook University and currently resides in Franklin, Tennessee.