Calculating pro rata salary and holiday entitlement is not always straight forward. Whether in relation to part-time workers, or where employees join or leave mid-year, employers have to get pro rata calculations right to comply with their legal obligations and avoid complaints from employees.
The following article looks at what pro rata means for salary and holiday entitlement for your staff, with some practical guidance on how to get the calculations right.
What does pro rata mean?
Pro rata is a Latin term that translates to “proportional” or “in proportion”. In general terms, it is used to describe a process where whatever is being allocated will be distributed in equal portions depending on an individual’s share of the overall object. Put another way, pro rata is where everyone gets their fair share in proportion to the whole.
A pro rata calculation can be used to determine the appropriate portions of any given whole, where the practice of prorating can apply in many areas of business, from billing for services and the calculation of interest, to the payment of insurance premiums for a partial term.
In the context of salary and holiday entitlement, as with any other area where pro rata is used, prorating essentially means to be paid in proportion of a fixed rate for a larger amount.
How to work out pro rata salary
Where a part-time employee is paid an annual fixed salary pro rata, they will only be paid a proportion of that salary to reflect the time spent working. This can be calculated by dividing the annual salary by the full-time hours, and multiplying this by the hours actually worked.
For example, if a job pays £30,000 per annum pro rata, where a full-time employee would work a 40 hour week, a part-time employee undertaking 25 hours per week would be entitled to an annual salary of £18,750 (£30,000 ÷ 40 x 25).
For someone who starts working for you mid-way through a financial year, either on a full or part-time basis, their salary will instead need to be prorated based on the remaining term left. Further, if an employee starts work mid-month, and is paid a fixed monthly salary, you will need to calculate their daily pay and pay them for the number of days worked that month.
How is pro rata holiday entitlement calculated?
When allocating annual holiday entitlement on a pro rata basis, the starting point is always the contract of employment. Depending on the terms of their contract, an employee may be entitled to contractual leave. However, under the Working Time Regulations 1998, almost all workers are legally entitled to a statutory minimum of 5.6 weeks’ paid holiday per year, inclusive of bank holidays and public holidays.
For a full-time member of staff working 5 days per week, this equates to a maximum of 28 days per year (5 x 5.6). That said, the way in which holiday entitlement is calculated will not only depend on the number of hours worked, but also the working arrangement, where there are different ways of calculating leave for a range of working patterns.
This includes the traditional fixed working pattern based on a set number of equal length days, where leave can be calculated in days of fixed length. However, it can also include those who are contracted to work a set number of hours in a period of time over days of different lengths, as well as those with casual or irregular hours, or on zero-hours contracts.
Below we examine how to pro rata holiday entitlement for those working regular hours over equal length days, as well as those working a fixed number of hours each week but not the same number of hours each day. These are each examined in the context of part-time workers, and for workers who have started or finished working for you mid-way through the leave year.
Holiday entitlement for a part-time worker
As with most other workers, part-time workers are still entitled to at least 5.6 weeks’ paid holiday, although this will amount to fewer than 28 days when calculated pro rata. The statutory holiday entitlement for a worker who works a full leave year, on either a full or part-time basis, is the lower of 28 days or 5.6 x days worked per week.
Part-time workers who have regular working hours and a fixed length of working day should have their holiday calculated in days, as this is the most straightforward calculation. For example, if someone works 4 days a week, they will be entitled to a minimum of 22.4 days’ leave a year (4 × 5.6). If they work 3 days, this will equate to 16.8 days’ leave (3 x 5.6).
It is also important to note that the statutory holiday entitlement is capped at 28 days. This means that even where someone works more than 5 days a week, they will still only be entitled to the maximum amount of 28 days’ annual leave.
For those who work a fixed number of hours each week but not the same number of hours each day, the position is far less clear, as there are no defined rules on how to incorporate the 28-day statutory cap. However, the best way is still to calculate the statutory leave entitlement in days, but then multiply this number by the average length of the working day. In this way, you will be incorporating the cap as 28 days of the average working day.
The average working day is defined as hours worked per week divided by the days worked per week. For example, where a part-time worker undertakes a total of 30 hours over 4 days a week, albeit working different hours each day, the average working day is 7.5 hours per day (30 ÷ 4). This would amount to a statutory leave entitlement for that worker of 22.4 days (5.6 x 4 days) or 168 hours (22.4 days x 7.5 hours).
Holiday entitlement for a worker starting mid-way through a leave year
Where a worker starts employment mid-way through a leave year, regardless of full or part-time status, their leave must be prorated to the proportion of the year remaining based on their annual entitlement of 5.6 weeks. This means that how much paid leave they get depends on how much of the current leave year is left and the amount of time they work for you, representing a proportion of the full entitlement that they have accrued.
You can either use a ‘leave year’, or alternatively an ‘accrual’ system during the first year of employment, to work out how much leave your staff should get. When a worker starts a job, the timing of their leave year may be set out under their contract or otherwise in writing. If the worker’s leave year is not specified, then it simply starts on the first day of the job.
When using the accrual system, where workers only have the right to take as much leave as has accrued at the time they take their holiday, that leave will build up monthly in advance on the first day of each month at a rate of one twelfth of their annual entitlement.
For example, where someone started work on 1 October 2020, even where their contract stipulates that the leave year runs from 1 January to 31 December, they ought to accrue one twelfth of their full annual leave entitlement. As leave starts to accrue on the first day of their employment, this means that as of the end of 2020, the worker would have accrued 3 months’ or 7 days worth of leave, based on 28 days’ full annual leave entitlement (28 ÷ 12 × 3).
In contrast, when using the leave year to calculate statutory holiday entitlement when a worker starts mid-way through that year, this is calculated by taking the worker’s full annual leave entitlement, prorating this based on the number of months started.
For example, if someone started work for you on 10 August 2020, working full-time 5 days a week, their full annual leave entitlement would be 28 days. Based on a calendar leave year (1 January to 31 December 2020), and taking the number of months they will have worked during that year (including August), this provides a prorated figure of 5 months. This would then give them a holiday entitlement of 11.66 days (28 days x (5 ÷ 12)).
However, the final step is to round this figure up to the nearest half or whole day, giving a total leave entitlement to the end of the year of 12 days. It is important to remember that you can choose to round up the holiday entitlement, but you cannot round it down.
Where workers undertake a fixed number of hours each week but not the same number of hours each day, it is unclear under the rules how to round to the next half or full day. As such, it is more appropriate to calculate leave in hours based on the average working day. This means you would calculate the worker’s full annual leave entitlement in days, prorating these based on the number of months started. You would then round this up to the nearest half or whole working day and multiply by the average working day to convert into hours.
Holiday entitlement for a worker leaving mid-way through a leave year
For a worker leaving mid-way through the leave year, the period of holiday entitlement will run from their leave year start date through to the last day of their employment, unless their employment contract allows for unused holiday from a previous year to be carried over.
On termination of employment, workers are entitled to be paid in lieu of any unused statutory annual leave accrued up to the date the employment ends. However, an employee will only be entitled to any accrued contractual leave if the employment contract makes provision for this.
For those who work regular working hours and a fixed length of working day, any unused holiday entitlement can be calculated by taking the leave entitlement for the full year multiplied by the proportion of leave year in employment, minus any leave already taken.
For example, if someone has worked 5 days a week on a full-time basis, they will have a full annual leave entitlement of 28 days. If that person has been employed for 146 out of 365 days in the leave year, or 40%, and they have not used any holiday entitlement by their last day of employment, they would be entitled to payment in lieu of 11.2 days leave (28 x 40%).
When incorporating the statutory cap of 28 days for workers with a fixed number of hours each week but not the same number of hours each day, you may want to multiply the number of days leave left by the average working day to convert this figure into hours.
Pro rata FAQs
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Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
