Good news, your business is taking off and your workload is growing fast. Making the right decision on staffing is critical for maintaining that growth and ensuring profitability.
Part-time employees can be a crucial part of the solution for a small business, helping to ease workloads as you expand, while also keeping overheads down. But calculating a part-time salary can come with new challenges if you've never done it before. One common way to pay part-time workers is pro rata.
In this article, we'll define what a pro rata salary is and how it differs from pay per annum, how to calculate a pro rata salary, with formulae, and what hiring part-time staff on a pro rata basis means for things like their holiday entitlement and pension contributions.
What is a pro rata salary?
A pro rata salary means that a part-time worker’s pay and benefits are provided in proportion to what they would receive if they were doing the same role full-time. So, if a person works two and a half days a week, they will receive half the pay and benefits that they would receive if they were doing the same role full-time, five days a week.
What’s the difference between pro rata and per annum?
The terms pro rata and per annum often feature in job descriptions. A salary for a full-time position, typically 37.5 hours per week, could be advertised as £30,000 per annum. A salary for a part-time job of one day, or 7.5 hours, a week could be advertised as £30,000 pro rata.
The person hired for the full-time, £30,000 per annum role will receive £30,000 per year. The person hired for the part-time one-day-a-week role at £30,000 pro rata, will be working for 20% of the time required of a full-time role, so they receive 20% of £30,000, which adds up to £6,000 per annum or per year.
How to work out a pro rata salary
To calculate a pro rata salary you need two figures. The first figure is the per annum salary this role would be paid if employed on a full-time basis, the second figure is the number of hours you want your part-time employee to work.
“The most common method used to work out a pro rata salary, is to take the percentage of hours to be worked and multiply that by the per annum salary,” explains Matthew Barton, Technical Manager of The Institute of Financial Accountants (IFA).
The formula for calculating a pro rata salary
A two-step formula is used to calculate pro rata pay.
Pro rata salary step one:
Annual Salary ÷ Full-time Hours = Rate
Pro rata salary step two:
Rate x Part-time Hours = Pro rata Salary
Calculating a pro rata holiday entitlement
Just as a pro rata salary is calculated in proportion to a full-time salary, benefits are calculated in this way too. “In the UK, pro rata contracts are covered by the Part-Time Workers Regulations,” says Barton at the IFA. “A full-time role entitles you to 5.6 weeks or 28 days of leave, minimum. A part-time role will be proportionate, so working three days per week will entitle you to 16.8 days per year.” Statutory sick pay is also calculated in the same way.
How a pro rata salary impacts pension contributions
When it comes to pension contributions on a pro rata salary, your pension allowance is linked to your ‘pensionable earnings’ or the proportion of your earnings that your salary is based on, says Barton. “It also depends whether the pension is a ‘defined contribution’ pension i.e. a set amount or percentage of your pension, or a ‘defined benefit’ pension, i.e. a pension that links your retirement income to your salary and length of service.
“For a ‘defined contribution’ pension, this is regulated by the UK government, and by law, you must contribute at least 8% of your earnings to your pension each month. Your employer must contribute a minimum of 3%, although they can contribute more. Assuming that you contribute 5% of your salary, this 5% will be based on your pro rata salary, rather than the per annum salary.”
Additional pro rata company benefits
Workplace incentives can help improve employee satisfaction and these are just as attractive to part-time staff as they are to full-time staff members. Some incentives are relatively straightforward to offer as part of a pro rata package. If your company runs a profit-sharing scheme, for example, the share of the profits that each staff member receives is calculated based on their salary, not on their hours worked.
However, there are some company benefits, such as health insurance or gym membership, which are not possible to provide on a pro rata basis. Instead, these will need to be offered at the discretion of the employer, or the employee may be asked to pay a contribution towards these benefits, worked out pro rata to their hours worked.
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The benefits of pro rata working
Hiring part-time staff helps you to control your overheads and keep costs down, while a pro rata salary shows your part-time employees how much they would be paid if they were working full-time. This helps them to benchmark their salary against similar roles at competing organisations and it helps them to measure their value to your company.
Steph Douglas, the founder of the online thoughtful gift company Don’t Buy Her Flowers, explains why it benefits her to hire part-time staff on a pro rata basis. “With a smaller business like ours, sometimes you find that you need to create a new role to achieve growth, but you’re not at the point where you’re ready to add a full-time employee," says Douglas.
“Hiring part-time staff has enabled us to try out a new role and ascertain it’s what the business and team need before committing to another full-time salary. Paying our part-time staff on a pro rata basis has enabled us to attract more experienced candidates who want flexibility. And, as we have grown, we have been able to offer them a longer working week if that also works for them. This enables us to help staff with their work/life balance and is particularly helpful for staff returning from maternity leave.”
What to be aware of with pro rata salaries
It’s also important to point out to potential part-time employees that while their calculation for a pro rata wage will show their annual salary, it won’t take into account tax and other deductions, such as pension and student loan repayments, which will be unique to the employee.
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