Employing workers on a salaried basis is exciting for a small business that is just beginning to take off. Paying someone on a pro rata basis is important if he is working outside of his typical salaried hours to help with a special project or new business initiative. Understanding the basics of how to best pay your dedicated employees helps you ensure they feel appreciated while their hard work guides your business toward increasing success.
Salary vs. Hourly Pay
Employees are typically paid either by salary or hourly pay. Salaried part-time employees are paid a set amount of money per year that is evenly distributed among their paychecks. They are paid the same amount of money for a week when they work 17 hours as they are for a week when they work 20 hours. Hourly part-time employees are only paid for the hours they actually work per week. If they work 15 hours one week and 20 hours the next week, they are paid more for the week they work more. As a business owner, paying people by the hour is more economical up front, but a permanent salaried employee might be more likely to stick with your company for the long haul. If you are looking for seasonal help or temporary help with a crucial project, paying an hourly wage instead of a salary can save you quite a bit of money.
The Meaning of Pro Rata
Pro rata means "a portion of" in Latin, and it is the business term that refers to the average hourly rate of a salaried employee. If a salaried part-time employee chooses to work extra hours to help with urgent company needs, you might offer to pay her on a pro rata basis for this extra work. This pro rata hourly pay would work out to be roughly equal to what she makes doing her usual salaried work for the company. You might also ask someone to pay you on a pro rata basis if you consult for another business or engage in speaking, leading courses or performing other work outside of your normal work day.
Calculating Pro Rata Pay
In order to convert an annual salary to hourly pay, use an hours calculator to add up the number of working hours your part-time salaried employee averages per week in a year. Because salaried employees are paid their full salary even if they do not work a full 20 hours per week, it is important to double check how many hours it actually takes them to complete their work each week. If an employee's annual part-time salary is $35,000 per year, divide that by 52 weeks in the year to come up with $673.08 per week in pay. If your employee works an average of 17 hours per week, you will divide $673.08 by 17 in order to come up with a pro rata amount of $39.60 per hour.
Keep in mind that the pro rata pay must be equal to or greater than what is required by minimum wage laws and that salaried employees are still eligible for overtime pay. If your employee needs to work more than his prescribed part-time hours or is working as an independent contractor with an outside client, this is how much he should be paid per hour of work. If your employee works more than 40 hours per week, he must be paid time and a half pay. For example, your part-time salaried employee who has a pro rata pay rate of $39.60 per hour would make $59.40 per hour if he works over 40 hours in a week.
Charging Pro Rata Pay
As a business leader, you may occasionally have opportunities to work with an outside company as an independent contractor. Your specialized skills could fill the gap in their needs while giving you additional exposure for your business. When you fill out an estimate or invoice for your services, you can use your calculated pro rata pay rate to help you figure out what to charge them for your services. In addition to invoicing your client, ask about filling out a 1099 form for the IRS in order to keep everything tidy for tax purposes on both ends.