Calculating an employee's salary proportionately is easy & in general, you just need to determine the fraction of the normal salary period the employee works for and then pay the appropriate amount. The daily pay and period percent pay methods below are legal under American federal law. The results will be the same if the employee receives a weekly salary and is usually very close if the employee receives a monthly salary.
Step
Method 1 of 2: Daily Salary Method
Step 1. Determine the annual salary before taxes
Start with the employee's official annual salary. Don't worry about taxes for now; salary will be deducted at the end of this section.
Step 2. Divide the annual salary by the number of weeks worked in a year
This is the amount of money employees make in a week. Use your annual salary before taxes and other deductions.
- For full-time employees in a year, the number of weeks worked is 52.
- For example, an employee who earns $30,000 a year earns 30,000 52 = $576.92 per week.
Step 3. Divide the weekly salary by the number of days worked in a week
It is the daily salary or the amount of money an employee earns each working day.
Continuing our example, an employee with a weekly salary of 576.92 works 5 days a week. His daily salary is 576.92 5 = $115.38 per day
Step 4. Multiply the result by the number of working days
Count the number of days the employee worked during the pay period for which you are calculating the proportion. Multiply that number by the daily salary you have calculated above.
If in our example the employee worked 3 days during the proportional calculation period, he would receive 115.38 x 3 = $346.14
Step 5. Withhold taxes as usual
Don't forget that proportional salary payments are calculated normally, namely taxable income. This means that you need to deduct a percentage of your income for income and payroll taxes, just as you would a regular salary. If the employee has a retirement account, (410k, etc.) or other special deduction arrangements, include these deductions as well.
If you are in the United States, see our article on federal tax withholding for more information. Additional state taxes may also be included
Step 6. Compensate former employees for unused vacation days
If an employee leaves the company with accumulated days of leave remaining, the employer is usually required by law to pay the employee for the day. Use the same method to calculate the amount of money paid per day:
- If the employee has accumulated 6 days of leave remaining, he must earn an additional 115.38 (his daily salary) per day, or the total is 115.38 x 6 = $692.28.
- Withhold taxes from this amount.
Method 2 of 2: Period Percentage Method
Step 1. Write down the employee's annual salary before taxes
This is the first step in determining the employee's earnings during the partial period of employment. Use his official salary, not the amount received after taxes.
Step 2. Determine the amount of income for each pay period
This is the amount the employee earns on each payday. If no information is available, calculate based on the frequency with which employees are paid:
-
Monthly salary → divide annual salary by
Step 12.
-
semi-monthly (twice per month), → divide by
Step 24.
-
biweekly (every two weeks) → divide by
Step 26.
- Weekly → divide by 52
- For example, an employee who earns $50,000 and receives a monthly salary earns 50,000 12 = $4,166.67 per month.
Step 3. Determine the fraction of days worked during the partial pay period
Look at the specific pay period you're proportioning and calculate the following:
- Write down the number of working days (at the salary level you are calculating).
- Divide the number of working days in the pay period. Count carefully. Don't assume that every pay period has the same working day.
- For example, an employee only works 14 days in September, whereas normally he has to work 22 days. The fraction of the working day is 14/22.
Step 4. Multiply this fraction by the amount of earnings for each pay period
The results will show the amount you need to pay the employee.
For example, an employee earning $4,166.67 per month who only worked 14 of the 22 working days in September would receive a salary of 4,166.67 x 14/22 = $2.651, 52 calculated proportionally.
Step 5. Withhold for taxes
Calculate tax deductions, pension deductions, and other deductions you normally make for the employee on regular paychecks.
Step 6. Pay the remaining unused leave compensation to the former employee
In this case, the employer is usually required by law to cash out any unused vacation days. Pay the employee's normal salary this time using the same proportional salary calculation method as above.
- For example, if our employee in the example above has accumulated seven days of leave, he/she must get an additional payment of 4,166.67 x 7/22 = $1.325, 76.
- This compensation is also taxed, just like a normal salary.
Tips
- For hourly employees, you don't need to use any of the methods above. You just need to multiply the hourly salary by the number of hours worked during the partial pay period. Pay hourly employees this amount, then deduct taxes as usual.
- Overtime pay is calculated normally for salaries which are calculated proportionally.
- Don't forget that some states have their own income taxes in addition to the federal ones. Since proportionally calculated salaries are also taxable, you will also need to deduct them to determine the employee's salary. Click here for a list of states without income tax (there are only 7).
Warning
- In the United States, tax-exempt employee salaries can only be calculated proportionately under specific conditions, most often when the employee's employment begins or ends in the middle of the pay period. You cannot deduct his salary due to reduced hours worked.
- Bosses have been challenged (without success) in court for choosing a method that results in less money at payroll. Perhaps the best way is to use one method to calculate an employee's salary proportionately.
