I have employed a part-time employee who started work on 14th July 2015. All my employees are monthly paid according to the employment contract, paid monthly in arrears, in 12 equal payments per year.

This new employee is contracted to work 5.5 hours on Tuesday, Wednesday, and Thursdays, and 8.5 hours on Friday. 25 hours per week in total. Her annual salary is £18000.

I worked out her pay for July 2015 (first month) as 18000/12=1500/31x18=£870.96. A simple pro-rata calculation for the month. She is disagreeing with my calculation.She is asking for £1038.75 based on the actual hours worked in the month of July. She is basing this on 75 hours worked in July times the hourly rate of £13.85 (18000/52/25).

I am not concerned about paying her £167.50 more for the first month. However, on a matter of principle I am objecting to it. I feel that my calculation is right and the monthly pay of £1500 is average per month irrespective of how many working days or hours there might be in a particular month. I would hate to think that as an experienced employer going back a number of decades I cannot calculate a simple pay, pro-rata.

Can some one, please, let me know whether I am right or wrong and why?

Many thanks.

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I think you are looking at this the wrong way

My comments are:

1) Firstly, why are you using 18 and 31 days - for a full time worker I would always calculate a salary per working day (of which there are 260 in the year), and multiply by the number of days worked in that first month.

2) In the event of a part time worker, the calculation would be the same. How many Tuesday, Wednesday and Thursdays were worked in that first month.

I agree that, once things are up and running, you are probably ok with your 1/12 method

If I was your employee, however, I think I would like to be paid on actual hours worked month by month

.

Spot on

Tom hits the nail on the head. Folk working weird, irregular hours are a pita and you need to look at them carefully.

Just to give you further food for thought, you probably need to look at holidays on an hourly basis. What if all her holidays are on Fridays ?

Using 18/31 as a fraction is just wrong. She isn't contracted to work on three days out of seven. Looking at it another way, she's worked three full four day weeks but only two three day weekends are in those 18 days. She needs paying for the 3 full weeks work you've had from her. An alternative way of calculating her salary is 3 x £18000/52 = £1038.46. Which is not far off her calculation.

Contract

What does her contract say? If it says an hourly rate, she is right, If it quotes an annual sum, paid monthly, then you are right.

Even so

But even with a monthly salary, you always have to look at first and last months a bit differently, surely?

Tribunal

I don't think you'd win your case with this argument at a tribunal.

What does her contract say?

This is such an obvious bone of contention that it should really be clearly laid out in the contract or terms and conditions, and I always recommend these should be sent out before the employee starts. There are numerous different ways of viewing this and numerous answers. You clearly know which one you want, so write it in the contract!

Salary Calculation

Like @tom123, I would always use working days as a calculation for salaried employees.

As @thehaggis suggests review what is in the contract. I would add that how you calculated the pro-rata salary could also prove a useful reference. Do you have an employee handbook with any indications on pro-rata calculations?

However, it doesn't really matter what calculation you use, as long as you apply the same method to all employees.

I would suggest thinking of what you would do if she worked full time.

You would take the annual salary, divide by 260 and multiply by the days worked for the first month. To balance off at the end of employment you would deduct days not worked, rather than days worked.

But she is not working full days.

I would gross up the salary to a full time equivalent on 40 hours, you would get a salary of £28,800 ((18,000 / 1300) * 2080). 1300 being 52 x 25 and 2080 being 52 x 40. I would then calculate that she would have received £1,550.77 for the 14 days she would have worked on a full time salary. I would then pro-rate the salary for the month based on £1,550.77 * (1300 / 2080) to get £969.23

Crazy

What a crazy way of calculating pay!! Gross it up to full time and then pro-rate it back down ??? What nonsense !!

If she'd been a full time employee, she'd've started on the Monday (13th) so she'd've worked 15 days rather than 14.

Bringing us back to (£969.23/14x15 =) £1038.46

Equitable

On an equitable basis you should get the £13.85 your employee is asking for.

You have an annual salary

You have a fixed number of hours per week (though different hours per day making the next line what it is)

As it is a fixed week with different daily hours then use weekly hours to get the hourly rate. Assuming 52 weeks in a year ( ignore the one day as not material) then £13.85 would be an equitable (and in my opinion correct) rate.

You are only paying for the hours worked.

[Minor Edit for further clarity}]

Extremely grateful to every one's contribution

Thanks every one for all the useful comments. I have taken some on board, like including the pro-rata payments in the contracts. I am a little disappointed that there is no simple answer for this. I do not blame the employee for thinking that she is not getting paid for the hours she has worked, and I do not expect her to understand the reason for the way I am calculating it.

All my employee contracts specify a monthly salary payable monthly; 12 equal payments in one year amounting to the salary contractually agreed with the employee. I am not contractually bound to pay an hourly rate or daily rate, but I am bound to pay the exact annual salary in one year. I have around 10 employees, I cannot be expected to work out each month how many working days they have in that month and pay them accordingly, a different amount each month. Especially, in the case of this new employee who works different hours on different days on a 4 day basis, it would be rather time consuming.

It is interesting that a County Council does work out a pro-rata payment the same as me. Please see below which is an extract from Lancashire County Council's website:

How is my pay calculated if I start part way through a month?

Your pay is calculated based on the date you started work and the number of days in the month.

For example, if your annual salary is £12,000 then your full monthly salary before tax etc. would be £1,000. However, if you started work on 15th of January then you would only be due seventeen days pay for the period 15th -31st January.

Your first month's pay in this example would be calculated as £1,000 divided by 31 days in January multiplied by 17 days in employment = £548.39.

(Please note that your salary is NOT calculated on the number of hours you work multiplied by your hourly rate.

To pay my new employee for the hours worked for the first month (part of the month) as some of you are suggesting would mean that I will have to pay her based on the hours worked every month, otherwise I would end up paying her more than the annual salary agreed. Even if I paid different amounts every month, I would still end up paying her slightly more than the annual salary we agreed. How is that fair or correct?

I have put the two different methods of paying in the first month and the rest of the year on a spreadsheet which is below. You can see that with my way of calculating it, the employee gets exactly the agreed salary of £18000 in one year (14th July 2105 to 13th July 2016). With the other method it is slightly more. I do not know if this is caused by 2016 being a leap year (ridiculous thought, I know). If I calculated the first month as some of you suggested and pay her £1500 in the remaining months the overpayment would be £167.78.

Paid hourlyPaid monthly 2015/2016 Total Hours£Hours£JULYFROM 14th1500/31x1875.001038.75870.97167.78AUGUST 100.001385.001500-115.00SEPTEMBER 111.001537.35150037.35OCTOBER 114.001578.90150078.90NOVEMBER 100.001385.001500-115.00DECEMBER 116.501613.531500113.53JANUARY 108.501502.7315002.72FEBRUARY 100.001385.001500-115.00MARCH 116.501613.531500113.53APRIL 108.501502.7315002.72MAY 105.501461.181500-38.83JUNE 111.001537.35150037.35JULYUNTIL 13th1500/31x1339.00540.15629.03-88.88 TOTAL1305.5018081.181800081.17

This can't be the same as your employee

You have agreed to pay them for 25 hours in each week but not for a 5 day week, or a seven day week as the council seem to be doing (strange way to do it). You have the further complication of not having the same number of hours for each day. You need to calculate the correct hourly rate as advised.

Penny-pinching

Bit of penny pinching, isn't it ? You'll always start on a working day by definition and the effect is exactly as set out in the OP. The employee works three full weeks but only gets paid for 2½.

You can't trust Lankies.......

What if ..... ?

What if your employee rang you on the morning of 4th August and resigned ?

Would you feel obliged to pay her for Saturday 1st to Monday 3rd, when she wasn't due to work at all ? I'm guessing not ......

Your employee worked for three full weeks in July and she deserves to be paid for three full weeks.

Agree

Yes, many organisations calculate on pro rata to the number of days in the month rather than working days. It makes life a lot simpler when there are bank holidays in the month!

On the downside if you pay on any other day then the end of the month if makes life more difficult.

Many thanks for confirming your understanding where I coming from. I pay at the end of the month but I take your point.

Yes I would

It seems to me that there are clearly two methods of doing this as I explained in detail above. Your example of employee calling on the morning of 4th August to resign, would mean that (in my opinion) the employment is terminated on 3rd of August. As she has already been paid for the month of July, I would work out the August salary as 1500/31x3 and pay her although she was not due to work at all in that period. This is because I am paying on a monthly basis.

I cannot calculate the pay one way when she starts and another way when she finishes to suit me. I do not know if that's what you are implying I would do.

You are not addressing the issue that I need to pay her 18000 in a year and using the hourly method works out wrong, and it means that I have to pay varying amounts each month for each employee (what a burden).

Not uncommon for PT staff

Whilst it is tricky, it is not uncommon to pay variable pay each month for part time staff.

I see. Thanks for that information. I guess in a small business where I have to do everything myself, it seems to be a bigger burden than it really is.

What is your opinion on the fact that doing it on an hourly basis ends up slightly more than the agreed annual salary?

Parameters

It's because your assumptions are wrong.

You're calculating an hourly rate based on 52 weeks instead of 365 days.

Unfortunately, you have to make an assumption somewhere along the line. That extra day might be a working day. Or it may not.

This lady's paid well above minimum wage. You obviously value her services. Do you want to start the employment off on the wrong foot ? That's the question only you can answer.

Public sector friend once told me..

I remember being told once that you always gave in your notice in the public sector to end on a Sunday. If they pay by calendar days this would explain why.

Give notice to end on a Sunday

Good one. Most probably this is the reason.

I worked for large companies in the private sector for many many years on a full time basis. I never worked anywhere where they did not pay me fixed monthly salary every month (1/12 of annual salary). Therefore, I fail to understand why it is suggested that I should pay my employees varying amounts every month.

February

Oki's employee needs to give her notice to end on a Monday in a February that's not in a leap year.

I have had very interesting and diversified feedback. Thanks to every one. It is crystal clear in my mind. I agreed to pay my new employee, monthly, £18000 per year for working 25 hours every week. I did not agree an hourly rate or a daily rate, although it works out as £13.85 per hour based on 52 weeks a year. Therefore, I will pay £18k a year. Whether I pay equal amounts every month in addition to the figure I calculated for the first month or varying amounts each month according the number of working hours does not really matter it amounts to the same annual salary. For example if I pay her £1038.75 for the first month instead of £870.97, I will pay her £1385 second month instead of £1500.

I value all of my employees, I would not like to start on the wrong foot for the sake of a small amount of money but it is the principle which is at stake here. I am doing absolutely nothing wrong by calculating the salary the way I am. It is the most practical way of doing it, with the exception of the first month and when the employee is leaving. I am not paying the employee any less. I am prepared to go to any tribunal and argue my case. Anyway, my employee took my calculations and showed them to an accountant who verified that they are correct and she is happy.

I can see the merits of paying according to the working days, as well in a particular pay period. It iis easier and less contentious to calculate when employee is starting and leaving.

Why did you ask?

Without wishing to seem rude, I am wondering why you asked this question.

Several people have put forward a reason why the first and final months should be calculated on actual days worked. In response to these you have come up with ever more detailed reasons why you think your initial method of calculating was correct. The extract from the County Council website was a particular highlight on that front in my view. It seems like you were determined to use your method regardless and were simply looking for agreement It now feels a lot like various people have invested time in doing calculations on your behalf that you are just ignoring.

Then you say this

Unless you disagree with the hourly rate calculation (simply as an effective hourly rate based on salary and hours agreed) then your employee is going to feel they are getting short-changed by your method. That, to my mind, is starting off on the wrong foot and is as much a point of principle as the stand you are taking. Going forward, having a predictable amount each month will usually be accepted knowing that the difference to hours worked each month will even out over the course of the year. The difference on that first period will never be evened out.At the end of the day it is your business though.

Decided.

Thanks very much for contribution and being frank. I agree with you that the employee might always feel short-changed by my method, and it is a case of starting off on the wrong foot. Although, my employee has agreed with my calculation and is happy, I have decided to change policy regarding starting month and leaving month, in view of the fact that it seems to be industry practice to pay for the actual hours/days worked.

Your comments about me being determined to use my method and just looking for agreement and ignoring everyone's comments could not be further away from the truth. I have listened to every one and have taken everything on board. You are making it sound as if everyone said the same thing. We had some people agreeing with me, some people disagreeing and some coming up with middle-ground solutions. The reason for my initial resistance was due to the fact that there was no general consensus among the people who,kindly, contributed. More importantly, the fact that I would have to pay more than the agreed annual salary did not make any sense to me. My decision to change is based on the fact that there are considerations other than mathematical correctness. Also, I misunderstood and thought people were suggesting that I pay everyone variable amounts every month. My fault for not clarifying.

Once again many thanks to everyone's help.

monthly pay

I think people only suggested that it's the first month and say the month in which she would leave that are calculated in a specific way. All other months are going to be annual salary /12. I usually adopt a method for the first month whereby I work out the number of day worked, say 12 for argument's sake, and also the number of days in the month that would have been worked if she'd started on the 1st of the month, say 22, and then pay 12/22 x the monthly salary (annual/12). I found this when I googled the problem.

Monthly pay

I thought some people suggested that I calculated working hours every month. May be I misunderstood.

You have a third method. Interesting. With your method I end up with £18056.63. Working it on the basis of a calendar month is the only method that yields exactly £18000.

yes, but

I would say you only get to exactly £18,000 when you add 12 complete months. Taking the joining and leaving months into your calculation would mean that you never get to the exact annual figure. That's just the way it is...

Have you ran this by your

Payroll administrator?

Agree with @Step

We run many payrolls. Some have variable shift working patterns and are paid by the hours worked each month, but for employees who work fixed hours, whether full-time or part-time (after all, full-time can vary between, say, 40 and 35 hours, so the logic is the same for part-time on 20, 15 or 10 hours a week), we always pay for the days/hours worked in the months of starting and leaving and a constant amount in the intervening months, calculated on the basis of 52 x n working days in a year, where 'n' is the number of days worked each week. No employer clients or their employees have ever complained about the basis used.

Thanks for your input

Thanks for your input. I take your point.

Both you and your employee are wrong

If you're paying monthly then the employee gets the same wage irrespective of the number of days in the month or the number of hours worked.

Your method underpays by basing it on a 31 day month, and hers overpays by using actual hours worked in a longer month.

Surely you just need to work it out as a percentage of the working month. 23 working days in July and she worked 14 of these so 60% of £1500. Works out over the year as:

MonthAmountFrom 14 July 15915Aug 151500Sep 151500Oct 151500Nov 151500Dec 151500Jan 161500Feb 161500Mar 161500Apr 161500May 161500June 161500To 13 July 16585TOTAL18000

14?

She worked three weeks at four days a week = 12 days.

Though I take your point.

There's still a potential imbalance in that the employee works more hours on Fridays.

Holidays

It's interesting that it seems to be common practice for local authorities to pay you for every day of the month, whether your contract says you're required to work or not.

It's like they're giving you 130-odd days holiday a year, though, no doubt, that won't be mentioned in the contract. It's counter-intuitive to me.

On the other hand, it's well known that your monthly paid employees always work for nothing on 29th February.