How to Prorate Your Payroll

If you have salaried employees, you might need to prorate their salary during payroll processing. Before you prorate salary, ensure it is legal under the Fair Labor Standards Act. The FLSA regulates the conditions that affect how employers prorate paychecks for salaried employees who are exempt from its overtime and minimum wage provisions.

FLSA Circumstances

  1. Under the FLSA, you may prorate -- or deduct from -- salary for unpaid disciplinary suspension, for violation of a major safety rule or to offset payments made to the employee for military or jury duty. You may also prorate during the first and last week of employment if the employee does not work the entire week, for unpaid leave under the Family and Medical Leave Act and if the employee takes more paid benefit days, such as vacation and sick time, than she has available. If you aren't sure whether you should prorate an employee’s pay, consult your regional U.S. Department of Labor's Wage and Hour Division for clarification.

Daily Rate

  1. Salaried employees are normally not paid according to hours worked; therefore, you prorate based on the employee’s daily salary. Divide his annual salary by the total number of pay periods in the year to get his salary per pay period. Then divide the number of workdays in the pay period to arrive at his daily rate. An alternative would be to divide the annual salary by the number of workdays in the year that salary is based on. Typically, salaried employees are paid for 2,080 work hours annually, which is 40 hours per week multiplied by 52 weeks.

Salary Increase

  1. If an employee receives a salary increase that is effective for a specific number of days during the previous or current pay period, you would need to prorate. If it’s for a previous pay period, the employee would be due retroactive pay. In this case, figure the difference between her old and new daily rate. Then multiply the difference by the number of days that the increase is effective for to get the retroactive pay. If the increase is effective in the current pay period for a specific number of days, simply pay those days at her new daily rate and the other days at her old daily rate.

Considerations

  1. The need to prorate payroll for hourly employees might be rare, as these employees are paid according to hours worked. In the case of an hourly rate increase, if it’s effective in a previous pay period, for a specific number of days, determine the number of hours the employee worked on those days. Pay those days at the difference between his old and new rate; this would be his retroactive amount. If the increase is effective in the current pay period, simply pay the respective hours at his new rate.