Pro-rata

Pro-Rata stems from Latin which means “in a proportion of.” It is a term, which carries both financial and legal attributes and is used to describe a proportionate allocation. Many businesses and companies use the phrase ‘pro-rata’ as a method of assigning an amount according to its share of the whole.

How is pro-rata used in business?

Some businesses will offer employees pro-rata wages, this is more associated with employees who work on a contractual or freelance basis. The assumption is that an employee who works on a freelance basis will receive a fraction of the salary or wages paid out to those employees who work full-time.

Consider the following as an example of pro-rata wage calculation:

A company hires two employees, one working 25 hours per week on a pro-rata basis, another on a 40 hour per week full-time contract. The full-time position offers $25,000 per annum, while the other receives a pro-rata rate.

To calculate:

$25,000 (salary per annum) / 40 (hours per week) = 625

625 x 25 (pro rata hours per week) = $15,625

This shows that the employee working on pro-rata rates will receive a basic salary of $15,625 per annum – a proportionate allocation of the full-time amount.

Where can “Pro Rata” allocations apply?

The use of pro-rata allocations is not only used to determine wages or annual income of employees. Additional applications thereof are found to calculate scheduled off days, pension contribution, employee subsidies, bonuses, and increases.

Employees who are offered a pro-rata position will receive somewhat fewer perks and benefits than those who are working full time. A consideration that needs to be reviewed carefully by those parties involved.

A pro-rata position can offer more leniency to those employees who aren’t looking for a full-time employment commitment.

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