Calculate part month salary: A Comprehensive Guide for UK Employers

Handling part-month salary calculations is essential in UK payroll, particularly for new hires, departing employees, those on unpaid leave, or mid-pay period promotions. To ensure fairness and clarity, it’s important to use a consistent method. This guide provides a simple, step-by-step approach to calculate part month salary accurately.

Why Consistency Matters in Payroll

A common challenge for payroll managers is ensuring consistency when they calculate part month salary. Different methods can be used, such as the calendar-day method, working-day method, or using averages. However, it’s crucial to select one approach and apply it uniformly across the organisation to prevent confusion, errors, and dissatisfaction. In this guide, we will focus on the working-day method, a straightforward and widely accepted approach for prorating salaries.

Step 1: Determine the Employee’s Monthly Salary

The first step in prorating an employee’s salary is to determine their gross monthly salary. This figure can typically be found in the employee’s contract or offer letter, where their annual salary is usually divided by 12 to get the monthly amount.

For example, if your employee’s annual salary is £36,000, the calculation for their monthly salary is:

£36,000 ÷ 12 = £3,000 per month

This gross monthly salary forms the basis for all further calculations. Keep in mind that the monthly salary might vary slightly if there are other elements like bonuses or commissions that aren’t distributed evenly throughout the year.

Step 2: Identify the Number of Working Days in the Month

Once you’ve determined the monthly salary, the next step is to figure out the number of working days in the specific month for which you’re calculating the part-month salary. This is a crucial step, as the number of working days can vary significantly depending on the month, and weekends, bank holidays, or any company-specific non-working days must be taken into account.

In the UK, a standard workweek is Monday through Friday, with Saturday and Sunday considered non-working days. Therefore, if you are calculating for a month like June, which has 30 days and begins on a Saturday, the total number of working days would be 20.

For example:

• June has 30 days in total.
• The month starts on a Saturday.
• There are 4 weekends, so subtract 8 non-working days.
• This leaves us with 20 working days.

It’s essential to adjust for different industries or employment contracts that might have alternative working patterns. For example, shift workers or part-time employees might have different working days, so you’ll need to account for these variations accordingly.

Step 3: Determine the Number of Days the Employee Worked

Now that you know the total number of working days in the month, the next step is to calculate the number of days your employee actually worked during the part-month period.

Let’s say the employee started working on June 10th. You would count the number of working days from June 10th to the end of the month. In this case, the employee worked from June 10th through June 28th (assuming the 29th and 30th are a weekend).

Example:

• From June 10th to June 28th, there are 15 working days.

Step 4: Calculate the Employee’s Daily Rate

The next step is to calculate the employee’s daily rate of pay for the month in question. To do this, divide the employee’s gross monthly salary by the total number of working days in that specific month. Continuing with our example, the employee’s monthly salary is £3,000, and there are 20 working days in June.

The calculation for the daily rate is:

£3,000 ÷ 20 = £150 per day

This daily rate serves as the basis for calculating the part-month salary, as you’ll multiply this rate by the actual number of days worked by the employee in that period.

Step 5: Calculate the Part-Month Salary

Finally, to determine the part-month salary, you multiply the employee’s daily rate by the number of days they actually worked during the month.

Using our example:

• The employee worked 15 days in June.
• The daily rate is £150 per day.
• Therefore, the part-month salary is:

£150 × 15 = £2,250

This amount is the employee’s gross salary for the month of June.

Additional Considerations When Calculating Part-Month Salary in the UK

While the steps outlined above provide a clear method to calculate part month salary, there are several additional factors that payroll managers need to consider:

1. Holiday Pay and Unpaid Leave

If the employee took paid holiday leave during the part-month period, those days should be included in the number of days worked. However, if the employee took unpaid leave, those days should be excluded from the calculation.

For example, if an employee took 3 days of unpaid leave in June, you would subtract those 3 days from the total number of days worked before applying the daily rate.

2. Pro-Rata Benefits

Certain benefits, such as bonuses, commissions, or allowances, are often paid on a pro-rata basis. For example, if an employee is entitled to a monthly travel allowance, this should be adjusted based on the number of days worked in the part-month period.

Let’s say an employee is entitled to a monthly travel allowance of £100, but they only worked 15 out of 20 days in June. The pro-rata allowance would be:

£100 ÷ 20 × 15 = £75

This same principle applies to any other pro-rata benefits your company offers.

 3. Statutory Deductions

Once you’ve calculated the employee’s gross part-month salary, you still need to apply statutory deductions such as income tax, National Insurance, and pension contributions. These deductions should be applied in the same way as they would for a full month but based on the part-month salary amount.

 4. Leap Years and Varying Month Lengths

It’s important to account for the varying lengths of different months when you calculate part month salary. Some months have 28, 30, or 31 days, and February has 29 days during leap years. In February, there are typically 20 or 21 working days, depending on how weekends fall, so the calculations for part-month salaries must be adjusted accordingly.

 5. Departing Employees

When an employee leaves partway through the month, their salary should be calculated up until their final working day. Additionally, you may need to account for any accrued but unused holiday entitlement, which must be factored into their final pay.

For example, if an employee has 5 unused holiday days at the time of leaving, they may be entitled to payment in lieu of these days. Be sure to include this in the final salary calculation.

 What Happens if You Promote an Employee Mid-Pay Period.

One common scenario that often causes confusion is what to do when an employee is promoted midway through a pay period. In this case, the promotion usually comes with a salary increase, and the employee will be entitled to the new, higher salary for the remainder of the pay period.

The simplest way to handle this is to calculate the employee’s old salary for the days worked before the promotion, and the new salary for the remaining days. Both amounts are then added together to calculate the total pay for the period.

For example, let’s say an employee earning £3,000 per month is promoted on June 15th, with a new salary of £3,500 per month. In June, there are 20 working days, so the employee worked 10 days at the old rate and 10 days at the new rate. The calculation would be:

• Old salary rate: £3,000 ÷ 20 = £150 per day 
• New salary rate: £3,500 ÷ 20 = £175 per day

Total pay for June:

• £150 × 10 days = £1,500 (old rate)
• £175 × 10 days = £1,750 (new rate)

The total salary for June would be:

£1,500 + £1,750 = £3,250

In conclusion, accurately calculating part-month salaries is essential for maintaining fairness and consistency within an organisation. By using a clear, consistent method like the working-day approach, payroll managers can ensure precise pay adjustments while ensuring that all employees know how to calculate part month salary correctly. For more information on how we can help streamline your payroll process, visit our services page: Payments & Payroll – WellTax (well-tax.com).