Understanding Proration Rules
This topic discusses:
Proration rules.
Proration examples with delivered frequencies.
Proration examples with nondelivered frequencies.
An employee is considered eligible for partial pay whenever a Job record has an effective date in the middle of a pay period. Typically, this happens whenever you hire, terminate, transfer, or change the rate of pay for an employee in the middle of a pay period.
On the Pay Group Table - Paysheets page, you select a proration rule to be applied to salaried workers and a proration rule to be applied to hourly or exception hourly workers. The rule that you select in each category determines how earnings and hours are prorated during paysheet creation for employees eligible for partial pay.
Whenever the system encounters a Job record causing partial pay, it applies one of these proration rules, depending on the employee type, and creates a separate pay earnings record with the corresponding hours or earnings for each partial period. Each proration method uses the work schedule specified for the pay group on the Pay Group Table - Paysheets page to determine the number of work days in the partial period, and then calculates the associated hours or earnings.
Additional data used to calculate hours and earnings in a prorated pay period include:
Standard hours defined on the Job Information page in the employee's job data.
The annualization factor of the work period frequency defined on the Job Information page in the employee's job data.
The annualization factor of the pay period frequency entered on the Pay Group - Definition page.
The annualization factor of the daily frequency entered on the Pay Group - Definition page.
Each proration rule uses some, but not all, of these additional factors.
Proration Rule Formulas
This table lists the formulas used to calculate proration:
|
Proration Rule |
Calculation Formula |
|---|---|
|
Salaried – Percent of Annual |
Work Days × Annual Pay Rate / Work Days per Year |
|
Salaried – Rate per Work Day |
Work Days × Hours Per Day × Hourly Rate |
|
Salaried – Percent of Period |
Work Days × Pay Period Compensation Amount / Total Work Days in Pay Period |
|
Hourly – Work Days |
Work Days × Hours Per Day × Hourly Rate |
|
Hourly – Percent of Period |
Work Days × Hours in Period × Hourly Rate / Total Work Days in Pay Period |
This table defines the variables in the proration rule formulas:
|
Proration Rule Variable |
Definition |
|---|---|
|
Work Days |
The number of days worked that correspond to the effective-dated action on the employee's job record, such as a mid-period pay rate change. Work days are specified in the Work Schedule field on the Pay Group table. |
|
Work Days per Year |
The system calculates work days per year based on the number of work days defined in the work schedule on the Pay Group table. For example:
Note: Custom daily frequencies do not affect the calculation of Work Days per Year. |
|
Hours Per Day |
The employee's standard hours in Job data times the annualization factor of the work period in Job data divided by the annualization factor of the daily frequency on the Pay Group table. |
|
Hourly Rate |
The employee's hourly compensation rate in Job data. |
|
Total Work Days in Pay Period |
Based on the work schedule on the Pay Group table and the pay period begin and end dates. |
|
Hours in Pay Period |
The standard hours in Job data times the annualization factor of the work period in Job data divided by the pay period frequency annualization factor. |
Important! If an employee is set up with any active job distributions (earnings distribution type is other than none) on the Job Earnings Distribution page, the system automatically calculates the proration—or partial pay—using percent of period, in place of any other proration rule that you might have specified on the Pay Group Table - Paysheets page.
The examples in this topic illustrate how the system applies salaried and hourly proration rules for mid-period pay rate changes using delivered frequencies.
Example Scenario
This table lists the relevant data in the employees' Job data:
|
Employee |
Employee Type |
Compensation Rate |
Compensation Frequency |
Standard Hours |
Work Period |
|---|---|---|---|---|---|
|
Mark |
Salaried |
Before: 1000 USD After: 1100 USD |
Semimonthly (annualization factor 24) |
40 |
Week (annualization factor 52) |
|
Jan |
Hourly |
Before: 10.00 USD After 11.00 USD |
Hourly (annualization factor 2080) |
40 |
Week (annualization factor 52) |
This table lists the relevant data on the Pay Group table:
|
Pay Frequency |
Daily Frequency |
Monthly Frequency |
Work Schedule |
|---|---|---|---|
|
S: Semimonthly (annualization factor 24) |
D: Daily (annualization factor 260) |
M: Monthly (annualization factor 12) |
NYYYYYN |
The examples involve one semi-monthly pay period of July 1 through July 15 as represented in this calendar:
|
S |
M |
T |
W |
T |
F |
S |
|---|---|---|---|---|---|---|
|
1 |
2 |
3 |
4 |
5 |
6 |
|
|
7 |
8 |
9 |
10 |
11 |
12 |
13 |
|
14 |
15 |
|
|
|
|
|
As defined by the work schedule on the Pay Group table, there are 11 workdays in the period July 1–15. On Monday July 8, all employees received a 10 percent pay increase. The respective pay rates are indicated as before and after in the compensation data listed in the activity scenario data. The following examples illustrate how Mark and Jan's pay would be prorated.
Note: The following examples assume that the employee's Earnings Distribution Type on the Job Earnings Distribution page is None.
Salaried – Percent of Annual
Work Days x Annual Pay Rate / Work Days per Year
5 Work Days × 24,000 USD / 260 = 461.54 USD
6 Work Days × 26,400 USD / 260 = 609.23 USD
Total Pay = 1,070.77 USD
Salaried – Rate per Work Day
Work Days × Hours Per Day x Hourly Rate
5 Work Days × 8 Hours per Day × 11.538462 USD per hour = 461.54 USD
6 Work Days × 8 Hours per Day × 12.692308 USD per hour = 609.23 USD
Total Pay = 1,070.77 USD
Salaried – Percent of Period
Work Days × Pay Period Compensation Amount / Total Work Days in Pay Period
5 Work Days × 1,000 USD / 11 Total Work Days = 454.55 USD
6 Work Days × 1,100 USD / 11 Total Work Days = 600 USD
Total Pay = 1,054.55 USD
Review of the Salaried Calculation Results
Reviewing the results of the proration rules above on salaried employee Mark, we find results vary from 1,070.77 USD to 1,054.55 USD. The prorated 1,070.77 pay is higher than the new pay rate of 1,100 per pay period, This overstated amount can be attributed to proration rules Percent of Annual and Rate per Day, which use factors Work Days per Year and Hours per Day that may vary per pay period compared to a fixed annual rate.
For example, a semimonthly pay period can have 9 to 12 actual Work Days per period compared to a fixed annualized 10.83 days (260 days a year / 24 periods a year). Using Percent of Annual depending on number of actual days per period (9 to 12 days) compared to annualized 10.83 days, the resulting pay period prorated rate may be under or over stated accordingly. Therefore, for semimonthly pay period, we recommend using the Percent of Period salaried proration rule. This holds true for monthly pay period also.
Note: For salaried employees paid on monthly or semimonthly pay period, it is highly recommended to use the Percent of Period salaried proration rule.
If the annualized factor is the same per pay period, for example weekly or biweekly pay period, then all the proration rules compute the same total earnings. For example, if Mark is paid biweekly, the prorated earnings are computed as illustrated in the following examples:
Salaried - Percent of Annual with Biweekly Pay Period
This example uses the same data presented in the example scenario with the exception of the pay period frequency. (The biweekly pay period covers only 10 work days).
Work Days x Annual Pay Rate / Work Days per Year
5 Work Days × 24,000 USD / 260 = 461.54 USD
5 Work Days × 26,400 USD / 260 = 507.69 USD
Total Pay = 969.23 USD
Salaried - Rate per Work Day with Biweekly Pay Period
This example uses the same data presented in the example scenario with the exception of the pay period frequency. (The biweekly pay period covers only 10 work days).
Work Days × Hours Per Day x Hourly Rate
5 Work Days × 8 Hours per Day × 11.538462 USD per hour = 461.54 USD
5 Work Days × 8 Hours per Day × 12.692308 USD per hour = 507.69 USD
Total Pay = 969.23 USD
Salaried - Percent of Period with Biweekly Pay Period
This example uses the same data presented in the example scenario with the exception of the pay period frequency. (The biweekly pay period covers only 10 work days).
Work Days × Pay Period Compensation Amount / Total Work Days in Pay Period
For a biweekly pay period, the Pay Period Compensation Amount = Annual Rate / 26
5 Work Days × (24,000 USD / 26) /10 Total Work Days = 461.54 USD
5 Work Days × (26,400 USD / 26) /10 Total Work Days = 507.69 USD
Total Pay = 969.23 USD
Hourly – Work Days
Work Days × Hours Per Day × Effective-Dated Hourly Rate
5 Work Days × 8 Hours per Day × 10 USD per hour = 400 USD
6 Work Days × 8 Hours per Day × 11 USD per hour = 528 USD
Total Pay = 928 USD
Hourly – Percent of Period
Work Days × Hours in Period × Effective-Dated Hourly Rate / Total Work Days in Pay Period
5 Work Days × 86.67 Hours / 11 workdays in the period = 39.3954 (which is rounded to 39.4) x 10 USD = 394.00 USD
6 Work Days × 86.67 Hours / 11 workdays in the period = 47.2745 (which is rounded to 47.27) x 11 USD = 519.97 USD
Total Pay = 913.97 USD
Review of the Hourly Calculation Results
Reviewing the results of the previous examples of the Work Days proration rule for hourly employee Jan, we find the total hours of 88 (8 hours x 11 days) does not add up to the total of 86.67 annualized hours for the semi-monthly period that the system calculates at paysheet creation. This can be attributed to Work Days proration rule using Hours per Day that may vary per pay period compared to a fixed annual rate.
For example, a semimonthly pay period can have 9 to 12 actual Work Days, giving 72 to 96 hours per pay period. This variation in actual work hours per period accounts for the difference in hours allocated compared to a fixed annualized 86.67 hours per biweekly period (2080 hours a year / 24 periods a year). Therefore, for semi-monthly, we recommend using the Percent of Period hourly proration rule. This holds true for a monthly pay period also.
Note: For Hourly and Exception Hourly employees paid on Monthly or Semi-monthly pay period, it is highly recommended to use Percent of Period Hourly Proration Rule.
If the annualized factor is the same per pay period, for example, a weekly or biweekly pay period, then all the proration rules compute the same total hours. For example, if Jan is paid biweekly, the prorated earnings are computed as illustrated in the following examples:
Hourly - Work Days with Biweekly Pay Period
This example uses the same data presented in the example scenario with the exception of the pay period frequency. (The biweekly pay period covers only 10 work days).
Work Days × Hours Per Day × Hourly Rate
5 Work Days × 8 Hours per Day × 10 USD per hour = 400.00 USD
5 Work Days × 8 Hours per Day × 11 USD per hour = 440.00 USD
Total Pay = 840.00 USD
Hourly - Percent of Period with Biweekly Pay Period
This example uses the same data presented in the example scenario with the exception of the pay period frequency. (The biweekly pay period covers only 10 work days).
Work Days × Hours in Period × Hourly Rate/Total Work Days in Pay Period
Hours in Period is 80 (2080 hours a year / 26 periods a year)
5 Work Days × 80 Hours × 10 USD / 10 Work Days in Pay Period = 400.00 USD
5 Work Days × 80 Hours × 11 USD / 10 Work Days in Pay Period = 440.00 USD
Total Pay = 840.00 USD
The previous examples employed PeopleSoft-delivered frequencies, which are based on a standard 40-hour, 5-day workweek. The examples in this topic illustrate how the system applies salaried and hourly proration rules for mid-period pay rate changes when the daily frequency is defined for a 40-hour, 3-day workweek.
In the example of a 40-hour, 3-day week, the annual number of workdays is 3 × 52 = 156. On the Frequency table, a nonstandard daily frequency must be defined with the annualization factor of 156. This frequency must be assigned on the Pay Group table.
The Hours per Day is derived by taking the employee's standard hours in Job data times the annualization factor of the work period in Job data divided by the annualization factor of the daily frequency on the Pay Group table. In the example of a 40 hour, 3-day week, the Hours per Day calculation is 40 × 52 / 156 = 13.333.
Example Scenario
This table lists the relevant data in the employees' Job data:
|
Employee |
Employee Type |
Compensation Rate |
Compensation Frequency |
Standard Hours |
Work Period |
|---|---|---|---|---|---|
|
Marie |
Salaried |
Before: 1000 USD After: 1100 USD |
Semimonthly (annualization factor 24) |
40 |
Week (annualization factor 52) |
|
John |
Hourly |
Before: 10.00 USD After 11.00 USD |
Hourly (annualization factor 2080) |
40 |
Week (annualization factor 52) |
This table lists the relevant data on the Pay Group table:
|
Pay Frequency |
Daily Frequency |
Monthly Frequency |
Work Schedule |
|---|---|---|---|
|
S: Semimonthly (annualization factor 24) |
D156: (annualization factor 156) |
M: Monthly (annualization factor 12) |
NNNNYYY |
The examples involve one semi-monthly pay period of July 1 through July 15 as represented in this calendar:
|
S |
M |
T |
W |
T |
F |
S |
|---|---|---|---|---|---|---|
|
1 |
2 |
3 |
4 |
5 |
6 |
|
|
7 |
8 |
9 |
10 |
11 |
12 |
13 |
|
14 |
15 |
|
|
|
|
|
As defined by the work schedule on the Pay Group table, there are 11 workdays in the period July 1–15. On Monday July 8, all employees received a 10 percent pay increase. The respective pay rates are indicated as before and after in the compensation data listed in the activity scenario data. The following examples illustrate how Marie and John's pay would be prorated.
Note: The following examples assume that the employee's Earnings Distribution Type on the Job Earnings Distribution page is None.
Note: The following examples use the formulas and variable definitions provided earlier in the topic.
See Proration Rules.
Salaried – Percent of Annual
Work Days x Annual Pay Rate / Work Days per Year
3 Work Days × 24,000 USD / 156 = 461.54 USD
3 Work Days × 26,400 USD / 156 = 507.69 USD
Total Pay = 969.23 USD
Note: Work Days per Year cannot be calculated using custom frequencies.
Salaried – Rate per Work Day
Work Days × Hours Per Day x Hourly Rate
3 Work Days × 13.333 Hours per Day × 11.538462 USD per hour = 461.53 USD
3 Work Days × 13.333 Hours per Day × 12.692308 USD per hour = 507.68 USD
Total Pay = 969.21 USD
Salaried – Percent of Period
Work Days × Pay Period Compensation Amount / Total Work Days in Pay Period
3 Work Days × 1,000 USD / 6 Total Work Days = 500.00 USD
3 Work Days × 1,100 USD / 6 Total Work Days = 550.00 USD
Total Pay = 1,050.00 USD
Hourly – Work Days
Work Days × Hours Per Day × Effective-Dated Hourly Rate
3 Work Days × 13.3333 Hours per Day = 39.99 (rounded to 40) × 10 USD per hour = 400 USD
3 Work Days × 13.3333 Hours per Day = 39.99 (rounded to 40) × 11 USD per hour = 440 USD
Total Pay = 880 USD
Hourly – Percent of Period
Work Days × Hours in Period × Effective-Dated Hourly Rate / Total Work Days in Pay Period
3 Work Days × 86.67 Hours / 6 workdays in the period = 43.335 (rounded to 43.34) x 10 USD = 433.40 USD
3 Work Days × 86.67 Hours / 6 workdays in the period = 43.335 (rounded to 43.34) x 11 USD = 476.74 USD
Total Pay = 910.14 USD