When an employee is setup to be paid a certain number of hours by default (via their Pay Run Defaults page) these hours will appear automatically in the pay run. This article explains how pro-rata hours are calculated in a pay run, dependent on whether an employee has basic or advanced standard work hours set up by default in their settings.
On the 30 August there are changes being made to the system calculation of pro rata'd hours in order to more accurately reflect hours worked by the majority of employees, ie those that work Monday-Friday. This article contains information pertaining to both pre and post 30 August 2022.
- How does the system calculate pro-rata hours before 30 August?
- How will the system calculate pro-rata hours after 30 August?
How does the system calculate pro-rata hours before 30 August?
Pro-rata hours and basic standard work hours
A part time employee is engaged to work 21 hours per week.
The employee is paid on a monthly basis and so their hours automatically display in the pay run.
The 91 hours is determined by multiplying the employee's standard weekly hours by 4.33333 (being the average number of weeks in a month over an annual period). If the employee was paid on a weekly basis the hours in the pay run will automatically display as 21 (21 hours per week x 1 week). If the employee was paid on a fortnightly basis, the hours in the pay run will automatically display as 42 (21 hours per week x 2 weeks).
Staying with the monthly pay example, if this employee commenced employment mid-pay period, the hours automatically shown in the pay run will be calculated on a pro-rata basis. For example, the same employee commenced employment on 9th July and the pay period ran between 1st July - 31st July, the employee's hours are calculated as follows in the pay run
Remember this employee's standard monthly hours are 91. How do we get a pro-rata value of 67.52 in this example? The calculation is as follows:
- number of days worked in pay run (assuming all week days and weekends worked) / total number of days in pay run; 23 days/31 days = 0.74193548
- multiply above result by number of hours worked in pay run (using the hours worked in a complete pay run); 0.74193548 x 91 hours = 67.51613 hours.
The same calculation is used to determine the pro-rata hours paid when an employee terminates mid-pay period.
Pro-rata hours and advanced standard work hours
A part time employee is engaged to work for 34 hours a week on agreed days.
The employee is paid on a weekly basis and so the employee's normal pay will automatically be calculated.
The employee's pay is basically a copy of the standard work hours set up in their Pay Run Defaults screen.
If the employee commenced mid-pay period however, the hours will calculate on a pro-rata basis. That is, the employee's advanced standard work hours will only be applied from the employee's commencement date. For eg, the employee commenced employment on 30th August and the first pay run for the employee was for the period 27th August - 2nd September. The employee's pro-rata hours appear as follows in the pay run.
The same philosophy is used to determine the pro-rata hours paid when an employee terminates mid-pay period.
How will the system calculate pro-rata hours after 30 August?
Pro-rata hours and basic standard work hours
For employees on standard work hours, the system default calculation will be days worked in period (the period being M-F), multiplied by the standard hours per day. The intention behind this logic is to cater for the majority of employees, of whom work Monday-Friday each week, as opposed to including Saturday and Sunday within the calculation.
For example, a full time employee is engaged to work 40 hours per week and is accordingly set up as follows, also working the business standard of 8 hours per day.
The employee is paid on a monthly basis and has a start date of 8th August 2022. When the pay run is created, the employee is paid for 144 hours.
The logic behind this calculation is that in the month of August, between the employees start date of the 8th and the end date of the 31st, there are 18 'work' days (ie Monday-Friday) so the calculation becomes 18 (work days) * 8 (standard hours per day) = 144 hours.
For part time employees, the system will honour any weekly cap that applicable to the employee. Eg, if an employee is set to work an 8 hour day and a 35 hour week, the system will pro rata the hours as above, but still cap the weekly amount to 35 hours.
The same calculation is used to determine the pro-rata hours paid when an employee terminates mid-pay period.
Pro-rata hours and advanced standard work hours
A part time employee is engaged to work for 34 hours a week on agreed days.
The employee is paid on a weekly basis and so the employee's normal pay will automatically be calculated.
The employee's pay is basically a copy of the standard work hours set up in their Pay Run Defaults screen.
If the employee commenced mid-pay period however, the hours will calculate on a pro-rata basis. That is, the employee's advanced standard work hours will only be applied from the employee's commencement date. For example, if the employee commenced employment on 30th August and the first pay run for the employee was for the period 27th August - 2nd September.
The same philosophy is used to determine the pro-rata hours paid when an employee terminates mid-pay period.
If you have any questions or feedback, please let us know via support@yourpayroll.com.au.