Proration Examples with Delivered Frequencies
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
Related Topics