The pro rata method is used to calculate salaries and leave entitlements for employees. It is important for graduates to understand the circumstances in which a pro rata salary is used and how to complete the calculations.

What is the pro rata method?

A pro-rata salary is when an employee is paid for the number of hours worked in proportion to what they would have been paid if they worked full-time hours. This occurs when, for a pay period, an employee does not work the predetermined hours.  It involves deducting a full-time salary amount and the coinciding leave benefits so that they are proportionate to the number of hours worked by the employee. 

Before accepting an offer of part-time employment that includes pro-rata income, it is important to complete these calculations yourself to determine whether the amount is sufficient to fund your lifestyle. It is also beneficial to understand the leave entitlements and benefits associated with the job, do research into the company to ensure that you will be paid in accordance with the law, and to carefully read the contract.

While the pro-rata method is a useful system that ensures that part-time employees are paid accurately for the amount of work they complete, it does mean that they are often required to keep track of their amount of work done and time spent to ensure that payments are made correctly. Understanding the pro-rata method can help you ensure that you are paid accurately and fairly for the work you complete.

When is the pro rata method used?

There are different circumstances in which pro rata salaries are calculated, including:

• Beginning or ending work for a company in the middle of a pay period: as less days are worked, a pro-rata salary is paid. 
• Part-time employment: proportionate pay for hours worked compared to a full-time employee is paid. 
• Receiving a promotion in the middle of a pay period: a salary increase for a certain number of days within a pay period means the salary may be pro-rata. 
• Working for only specific time periods, i.e., irregularly. 
• Unpaid leaves: leave that exceeds paid leave entitlements require pay to be pro-rated. 

Part-time employees

Per the National Employment Standards, a part-time employee works less than 38 hours a week on a permanent basis or fixed-term contract. Read more about part-time employees here. 

The pro rata method is used to determine salaries and leave entitlements for these employees. Part-time wages paid at an hourly rate are easy to calculate by using the number of hours worked. However, salaries are more difficult to calculate for part-time employees. A full-time employee may be paid $50,000 a year. However, this amount needs to be adjusted for someone who is a part-time employee but receives the same salary amount. This is to ensure that part-time employees are adequately paid for the hours worked. Other entitlements received by full-time employees, such as long-service leave, sick leave, and parental leave, also need to be adjusted so that they are proportionate to the amount of time worked.

How to use the pro rata method?

Calculating pro-rata salaries may be impacted by an award or enterprise agreement associated with the role and company. However, here are the general steps to follow when calculating a pro-rata salary and leave benefits.

1. Identify the proportion

First, the proportion of work completed by the employee in comparison to a full-time employee in the same role must be calculated. For instance, if the company standard is that a full-time employee works 40-hours a week and a part-time employee works 20-hours a week, then the proportion in question is 50%. This means that the part-time employee receives 50% of the annual salary and leave entitlements as the full-time employee because they complete half the work.

2. Calculate payment

Salary

An employee’s regular salary can be calculated based on whether they are paid weekly, fortnightly, or monthly. The full-time salary amount is divided by the number of full-time working hours and then multiplied by the number of prorated hours. 

For example, if a full-time employee works 40 hours/week and earns $50,000 annually, a part-time employee that works 50% proportionate to the full-time employee works 20 hours/week. Their annual salary can be calculated by dividing the full-time salary amount of $50,000 with the full-time weekly hours of 40 and then multiplying with the part-time weekly hours of 20 to equal a $25,000 pro-rata annual salary.

Hourly Rate

The hourly rate can also be calculated. This is the amount of money that is earned for each hour an employee works. This is calculated by dividing the annual salary amount by the number of hours worked in a year. For example, for an annual pro-rata salary amount of $25,000, a part-time employee that works 20 hours a week works a total of 1,040 hours. The hourly rate is therefore $25,000/1,040 which equals $34.04/hr. 

Leave entitlements

Leave entitlements are prorated for all part-time employees, regardless of whether they receive an annual salary or are paid hourly. This means that while a full-time employee may be entitled to a certain amount of paid  leave, this amount will be adjusted in accordance with the number of hours worked by the part-time employee.

If a full-time employee who works 40 hours a week is entitled to 4 weeks of annual leave, then a part-time employee who works 20 hours a week is entitled to 50% of the leave entitlement, which is 2 weeks.