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# What is the best formula to calculate final salary

Final salary calculation

• ### MTD - falling between MTD and old system

Hi there
I am currently having a dispute with the payroll department which we outsource from a LA (Local Authority) as we are a private LATC (Local Authority Trading Company).  The basis of the dispute is as follows:
Terms of Employment as follows:
·         between 05 June 2017 – 12 January 2018.
·         on a full time basis at £42,876.00 per annum
·         25 days annual leave
·         37.5 hours per week, Monday – Friday 9am – 5.30pm
From my discussion with the LA, it appears that the final salary calculation has been calculated using the following formula:
Gross Annual Salary divided by 365 days – then the day rate multiplied by 16 days (01 January – 12 January, 12 days and 4 days annual leave).
This formula and method that has been applied is in my opinion is not correct, as the employee was contractually employed by the LATC on a  Monday – Friday work week and not Monday to Sunday work week as the LA suggests.  Furthermore,  by dividing the annual salary by 365 days the daily rate is reduced considerably.  To demonstrate please see table below:
LA Calculation using Gross Annual Salary/365 days Formula
01-Jan-18 to 12-Jan-18 = 12 days + 4 days annual leave = 16 days

Gross - £ 1,879.50 for 16 days
Net - £ 1,431.91 for 16 days
All earnings based on Tax Code 1265M

I believe the following formula based on the contract of employment should be Gross Annual Salary divided by 52 weeks and then multiplied by number of weeks worked and if days a % of that week for instance 4 days would equal 80% of weekly pay or divide work week by 5 to get day rate.

Calculation using Annual Salary / 52 weeks Formula
01-Jan-18 to 12-Jan-18 = 10 working days + 4 days annual leave = 14 days

Gross - £ 2,308.74 for 14 days
Net - £ 1,758.96 for 14 days
All earnings based on Tax Code 1265M

The LA states this is the basis for how their systems are set up and how all salary payments are made, however, the employee who has left,feels that they have been underpaid and has challenged that whilst this might be the way the LA calculates final salary it does not mean it is right.

I guess my question is in two parts really:
0.    Which calculation formula is correct?
0.    If the 52 week formula, how can this be challenged?

Thank you!

### Replies (10)

By lionofludesch
30th Jan 2018 14:07

There's no right way. My thoughts would be that the employee is paid to work so only working time should count.

However local authorities habitually seem to work on a 365 day year (366 in leap years). Hence the advice to resign with effect from Sunday rather than Friday.

What does the contract say ?

Incidentally, 25 days holiday is below the legal minimum.

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By neiltonks
30th Jan 2018 14:51

Your first port of call should be the employment contract and any other documents which form part of the terms and conditions of the employment. The method of working out a day's pay is usually stipulated there. If so, that's the one they should be using.

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By pauljohnston
01st Feb 2018 11:21

I would just add that using the 365/366 system is the one we used for payroll when an employee is not employed for a full month. Normally at the beginning or ending of such employment.

Yes ex-employees often complain about the calculation but as annual salary means just hence the 365/366 system

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By lionofludesch
01st Feb 2018 16:04

Can I join your firm on Saturday ?

I'll be resigning on Sunday.

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By andy.partridge
01st Feb 2018 16:22

Gosh.

So if I'm contracted to work Monday-Friday but was asked to come in on one Saturday does that mean
a) you don't pay me at all (I am already being paid for 365 days),
b) you pay me at a rate that is less than I get for working Mon-Fri (1/365 of my annual salary) or
c) you pay me my Mon-Fri rate (roughly 1/261 of my annual salary)?

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By lionofludesch
01st Feb 2018 16:36

No, Andy - it means you get paid the same rate for the 1631 hours you work as you do for the 7135 hours which you don't work.

Probably means your hourly rate is way below minimum wage.

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By andy.partridge
01st Feb 2018 16:39

Complicated, isn't it?

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By lionofludesch
01st Feb 2018 16:42

Wait till I add the 400 year leap year cycle into it.

Thanks (1)
By ASF
01st Feb 2018 11:42

Wherever I have have worked and come across this, 260 days per year has been used for full time staff (52 weeks x 5 days), starting or leaving part way through a month. If a part-timer, we would have mutliplied by 20/40/60/80%, as appropriate. Office-based staff generally don't get paid to work weekends!

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By angusbruce
01st Feb 2018 12:34

I've always used the 260 days per year, so 52 weeks x 5 days, how you calculate the first payroll, is how you end as well, so it should even itself out.

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