What Are the Different Prorating Methods for New Hires?

Sprout Payroll supports two methods on pro-rating the basic salary of new hires.

1. Default - counts the number of days present within the cutoff

2. Pro-rated / Salary less absent - counts the number of days wherein the employee is not yet hired.

 

To further understand this, let’s assume the following:

Employee: John Dela Cruz

Date Hired: September 22, 2017

Basic Salary (per month): 30,000.00

Work Days per Year: 261 (Rest Days are Saturdays and Sundays)

Statutory Period Schedule: Regular (1-15 and 16-30)

Current period to be processed: September 2017 Period 2 (September 16-30) 

Here are the steps on how to compute the pro-rated basic salary using the Default method:

1. Compute the number of days per cutoff based on the work days per year. (Work Days per Year / Months in a Year / Periods per Month).

• 261 / 12 / 2 = 10.875

2. Count the number of days present (including the date hired).

• On this example, days present is 6 days.

3. Use this formula to compute the pro-rated basic salary:

(Basic Salary / 2) * (Days Present / Days per Cutoff)

 

• (30,000 / 2) * (6 / 10.875) = 8,275.86

 

On the other hand, here are the steps on how to compute the pro-rated basic salary using the Salary less Absent method:

1. Count the number of days not yet hired.

• On this example, days not yet hired is 4 days.

2. Compute for the daily rate. (Basic Monthly Salary * Months in a Year / Work Days per Year)

• 30,000 * (12 / 261) = 1,379.31

3. Use this formula to compute the pro-rated basic salary:

(Basic Salary / 2) - (Days not yet hired * Daily Rate)

• (30,000 / 2) - (4 * 1,379.31) = 9,482.76

Hence, for this example, the computed pro-rated basic salary results to the following

1. Using Default method: 8,275.86

2. Using Salary less Absent method: 9,482.76