Payroll Processing > Frequently Asked Questions > How does the pro-rata calculation work?
Please note: the explanations below refer to months but the same concepts apply to employees with other pay frequencies – simply substitute “month” with “week” / “fortnight”.
A pro-rata percentage is calculated automatically for salaried employees whenever a payslip is not for a full month. This usually occurs in one of three situations:
- The employee started employment during themonth.
- The employee’s service ended during themonth.
- The employee worked for a full calendar month but your pay frequency ends on a day other than the last day of the month.
There is no set requirement for calculating pro-rata percentages, either from SARS or in the relevant legislation, so employers may choose the method they prefer.
SimplePay calculates the pro-rata percentage asdays employed / days in themonth x 100. The following examples illustrate how this is used in each of the three situations mentioned in the previous section:
- If your pay frequency ends on the last day of the month and an employee starts on 15 March, the pro-rata percentage will be 54.84. This is calculated as 17 / 31 x 100, where 17 represents the days employed and 31 is the total days in the month of March.
- If your pay frequency ends on the last day of the month and an employee’s service is ended on 20 April, the pro-rata percentage will be 66.67. This is calculated as 20 / 30 x 100, where 20 represents the days employed and 30 is the total days in the month of April.
- The employee worked for a full calendar month but your pay frequency ends on a day other than the last day of the month.For example, if your pay frequency ends on the 25th of the month and an employee starts on the 1st of June, the pro-rata percentage will be 80.65. This is calculated as 25 / 31 x 100, where 25 represents the days employed and 31 is the total days in the current payment month (26 May to 25 June).
As mentioned in the previous section, there are no set rules for calculating pro-rata percentages, so you may override the calculated value to conform with the calculation generally used by your company.
The most common alternative to the above calculation is days worked / working days in month x 100:
- For example, if an employee works Monday to Friday and starts employment on 22 June 2016, the pro-rata percentage would be 31.82. This is calculated as 7 / 22 x 100, where 7 is the number of days the employee worked and 22 is the number of working days for this employee in June 2016.
To change the pro-rata calculation method:
- Go to Settings > Payroll Calculations > Pro-rata Method.
- Select ‘Working Days’ as the Pro-Rata Method and the date that you want to start using this pro-rata method for.
- Click Save.
You may also wish to pay an employee their full salary even though they did not work the full period. You can do this by overriding the pro-rata percentage to 100.
To override the pro-rata percentage, go to the employee’s profile and click on the pro-rata percentage on the Payroll tab. Then enter the percentage you would like the system to use.
Please note that the tax calculation will still use the calculated pro-rata percentage using the calendar days method, in line with SARS’s requirements.
The main purpose of the pro-rata percentage is to ensure accurate tax calculations; therefore, it is currently only automatically applied to the Basic Salary as a convenience.
You can enable the pro-rata calculation for custom items that are Income, Allowance or Deduction items if they have been set up to with the Input Type as “Fixed Amount” or “Enter Amount Per Employee”.
More information on custom items can be found in the following article:
Payroll Setup > Company Setup > Custom Items
If any other system or custom items need to be pro-rated, you will need to manually calculate these and enter the relevant amount.
Still stuck? You can browse theindexfor related topics or simplycontact us.
You are using the help system of SimplePay,apayroll systemthat simplifies thepayroll process. Designed just forSouth Africa, it's a fully online solution.Read more.
