Pro-rata pay is the proportion of a full period's pay an employee earns when they are only employed for part of that period. The Latin phrase means "in proportion", and in payroll it usually applies on hiring, termination or an unpaid absence.
What it means
A monthly-paid employee who starts on the tenth of the month has not earned a full month's salary, so the pay is pro-rated to the days actually worked. The same applies to a leaver, or where unpaid leave reduces a period. The method - calendar days, working days, or hours - should be applied consistently.
Where it fits in
Pro-rating happens before the period's PAYE is calculated, since it changes gross remuneration for the period. It is distinct from annualisation: pro-rata adjusts a single period's earnings for partial service, while annualisation scales pay for the tax-table lookup.
Key rules
- Pays a fraction of a full-period amount for partial service in the period.
- Common on hiring, termination and unpaid leave.
- The basis (calendar days, working days or hours) must be applied consistently.
- Applied to earnings before the period's PAYE is worked out.
