In any organization, changes to an employee's status or pay rarely align perfectly with the start or end of a pay period. Proration is the process used to ensure employees are compensated fairly and accurately for partial periods of work.
Within Employment Hero, these adjustments are calculated automatically based on industry standards to keep your records precise. This typically occurs when an employee:
- Is hired (first pay period)
- Is terminated (last pay period)
- Receives a raise mid-period
- Is assigned or unassigned a Time Off policy
- Reaches a new seniority level for higher accruals
The platform calculates these figures using the method recommended by the National Payroll Institute (NPI).
To calculate a proration, follow this simple formula:
- Find the daily rate: Take the annual salary (or annual time off amount) and divide it by 260 (the NPI standard for working days in a year).
- Multiply by days worked: Multiply that daily rate by the number of actual working days in that specific period.
For hourly employees, the calculation is based on an average of 10.833 days per period (for semi-monthly schedules). For time off, we assume employees work complete days at their specified hourly rate.
The way we prorate depends on how often your policy grants time off:
- Daily: No proration is needed since time is granted every day.
- Weekly, Biweekly, Semi-monthly, or Monthly: Prorated based on the 260-working-day standard. This helps time off stay in sync with payroll.
- Quarterly or Yearly: Prorated based on the total number of calendar days in that period (including weekends).
Important Note for Non-Traditional Workweeks
If your team works weekends but uses a weekly or monthly policy, the system still assumes a 260-day work year. For these teams, a quarterly or yearly policy may be more accurate as they count every day in the period.
Understanding how these calculations work ensures that your payroll and time off balances remain transparent and compliant. By automating these industry-standard methods, the platform removes the guesswork and manual calculations from your workflow.
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