Prorations are essential in payroll calculations, primarily when employees work fewer days than usual in a given pay period. Our system prorates using the National Payroll Institute (NPI) recommended method. Here’s how it works.
Understanding the 260-Day Formula
The 260-day formula assumes an employee works 5 days a week for 52 weeks a year, totalling 260 workdays. When employees don’t work all scheduled days in a pay period, prorations adjust their pay to reflect the actual days worked.
Formula:
Prorated pay = (Days Worked / 10) X Gross Pay for the Period
In this case, 10 days represent the standard workdays in a bi-weekly pay period.
Example Calculation
Imagine an employee is on a bi-weekly pay schedule with a gross salary of $1000 for the pay period. However, the employee only worked 5 out of the 10 days in that period. Here’s how you would calculate their prorated pay:
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Determine the ratio of days worked to total workdays in the period. 5/10 = 0.5
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Multiply this ratio by the gross salary for the period. 0.5 X $1000 = $500
Result: The employee’s prorated pay for that pay period would be $500.
Why the 260-Day Formula?
The 260-day formula ensures consistent and fair prorations by accounting for the number of workdays in a pay period. It accurately reflects an employee’s earnings based on the days they worked.
Disclaimer: This article is not intended to provide tax, legal, benefits, financial, or HR advice. Since laws and regulations are subject to change and may differ by location, please consult a legal or HR professional for personalized guidance.