Final Tax Calculation

Final Tax Calculation

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I am ceasing to work for my current employers. I am due 3 days holiday so, in effect, I should be paid up to and including Monday the 26th Febwhich is 26/28 of the month.

I have just received my payslip and it is calculated as follows:
Annual salary / 52 weeks / 5 days = £x per day

The working days in Feb (up to and incl 26th) are 18 and therefore 18 x £x per day = £gross in month.

This seems unfair as normally I am paid 1/12 of my annual salary and, if it should normally be calculated on a daily basis, I should have received more, for example, in January (23 days at £x works out at more than 1/12th of annual pay).

Payroll is not my strongest subject and my employers calculations may be correct but, to me, it seems as though I am being paid alot less.

Anon

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By deanshepherd
28th Feb 2007 09:32

As Neil and Euan point out..

..there are a variety of methods that can be used which will give varying outcomes; particularly February being a shorter month.

I have found Euan's 18/20 working days method to be the most common in practice and I would press your employer to use this one.

That said, I was short-changed once by a disgruntled former employer and sometimes it can be less stressful to just take the moral high ground and not lose sleep over a few days pay however emotive it may seem at the time.

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By neiltonks
27th Feb 2007 12:14

A quandry
You’ve come across something which has taxed payroll people for many years – how to calculate a fair pro-rata value when an employee leaves or joins part way through a month.

Your employer has used one of a number of possible methods: a year contains 52 weeks and a week contains 5 working days so a day’s pay is (annual salary / 52 / 5), or (annual salary / 260). This is a little inaccurate as a year actually contains 52.14 weeks (or 52.29 in a leap year) but nevertheless it’s a formula which is often used.

The root of the problem is actually that you’re paid 1/12th of your annual salary each month. As months contain differing numbers of working days, the effective daily rate of pay varies from month to month.

Using a fixed daily pay rate for working out pro-rata values and a variable rate for normal payments is bound to give rise to apparent anomalies such as the one you’ve encountered.

As for what you can do about it, well it depends. If the method is defined in your employment contract then you’re stuck with it. If not, you can always try arguing your case.

In practice the employer would probably use a different formula in certain situations. For instance, ask them if they’d have used the same method for someone leaving on the 30th of May 2006. In that case the 260ths method would have given 22/260ths of annual salary, which is more than 1/12th so the person would have been paid more than a normal month’s pay for working one day less than everyone else!

Neil.

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By Euan MacLennan
26th Feb 2007 13:17

I disagree
What was your employer's method of calculating the odd number of days in the month you joined? Probably the same as the policy adopted in the month of leaving, in which case your employer is being consistent. It is the logical method for anyone whose contract specifies a salary of £x a year.

Your approach might be justified if your salary is specified as £x a month but even then, your method based on calendar days is completely wrong because it includes weekends when you do not work. It would be more logical for you to claim that you should be paid for 18 out of 20 working days in February, which is 90% of a month, rather than 26/28 which is 92.86%.

Incidentally, the listentotaxman webpage is a PAYE calculator - not an arbiter of pay policy - and I have not found any facility on it for calculating payments for part months.

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