When calculating allowances for a pay period, TechlifyHR prorates the allowance if it was only valid for part of the pay period. On prorated allowances, the calculated payroll amount will differ from the allowance amount.
Understanding Prorated Allowance Calculations
Prorated allowances are calculated in direct proportion to the number of days the allowance has been active for. The prorated formula uses the daily rate (of the allowance) as a basis to calculate the allowance for this specific payroll period. Let’s look at a few use cases:
Case 1: Allowance Cover Pay Period
Let’s say John’s allowances start at the beginning of the payroll period as shown below, then John would receive the full allowance amount for this payroll period.
Example: If the payroll period is August 1st to 31st, 2023, and the allowance started on August 1st, 2023 (or before), then the allowance would not be prorated, and the full allowance would be paid.
Case 2: Allowance Starts Within The Pay Period
John’s salary and allowances begin within the payroll period as shown below, which would result in him receiving a pro-rated amount.
Example: If the payroll period is August 1st to 31st, 2023, and the allowance started on August 7th, 2023 (or before), then the allowance be prorated, and John would receive a fraction of the allowance.
Case 3: Allowance Changed At The Middle Of The Pay Period
John received a salary increase within the payroll period as shown below, which would result in him receiving a pro-rated allowance.
Note: Since TechlifyHR uses the industry-stardard daily rate calculation, for months with a larger number of working days, the allowance would be more, and vice versa.
Case 4:
John received a salary increase within the payroll period as shown below, but you wanted to provide him with the same allowance, not a dollar more.
Case 5:
John received a salary increase twice within the payroll period but you copied allowances and forgot to change start dates in new salaries.
Overall Summary
Allowances start and close date are equally important as salary start and close dates with respect to the payroll period to determine the pro-rating.
Techlify Inc
Techlify |