Welcome to today's session of #HRwithEM, a weekly #TwitterSession to connect, learn and share career development tips, employee experience practices, as well as resolve burning #HR issues and/or questions.
Today's #TwitterSession would focus on helping a young HR professional resolve this question. #HRwithEM
"Prorated pay" comes up when an employee did not work the full month either by reason of resignation or unauthorized absence from work. #HRwithEM
There are two methods by which you can determine the rate of pay per day in such a situation.

You could use the "Working" or "Consecutive" Day Method.

#HRwithEM
"Working" day method assumes that every month has 22 working days, while the "Consecutive" day method takes into account whether it's a 28, 29, 30 or 31 days month. #HRwithEM
The formula therefore for calculating prorated pay using the Working Day Method is:

Gross Salary / (divided by) 22 Working days x (multiplied by) Number of days worked = (equals to) Prorated pay

#HRwithEM
The formula therefore for calculating prorated pay using the Consecutive Day Method is:

Gross Salary / (divided by) 28 or 29 or 30 or 31 (depending on the month in question) x (multiplied by) Number of days worked = (equals to) Prorated pay

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As an example:

Let's assume that your gross salary per month is N100,000 and you worked for only 20 days in the month of January 2019. How much should you be paid using either of the two methods that I described in my previous tweets?

#HRwithEM
Although the average working days per month is 22, there are months in which you end up with 20, 21, 22 or 23 working days. The first rule would be to check the actual working days for the month in which you intend to prorate the salary. #HRwithEM
January 2019 has 23 working days and 31 consecutive days.

Our assumption is that the employee in question reported to work on the 21st and stated their intention in no longer working with the company immediately, hence the need to prorate the salary for the month. #HRwithEM
Working Day Method:
(N100,000 / 23 working days) x 14 working days worked = N60,870 (prorated pay)

Consecutive Day Method:
(N100,000 / 31 conservative days) x 20 days worked = N64,516 (prorated pay)

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From the example computation, it is clear that the method used will either put more or less money in the pocket of the employee. My advice is that whatever method you adopt, you need to remain consistent and apply same across board. #HRwithEM
In order to determine tax (PAYE) payable on the prorated salary, you would need to work out the Effective Tax Rate for this employee who is on a monthly gross salary of N100,000. #HRwithEM
Taxable pays are determined using annual salary figures. In this case, the annual salary figure would be N1,200,000.

The current tax law allows for certain reliefs, however in this case we would apply the major ones that are relevant.

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The major reliefs for this employee are:
Pension (8% of N1.2m) = N96,000
NHF (2% of N1.2m) = N30,000
Consolidated (N200,000 + 2% of N1.2m) = N440,000.

Taxable Pay is therefore:
N1,200,000 - N556,000 = N634,000

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To arrive at the actual tax amount we would now appy the tax table as follows:
First N300,000 = 7% = N21,000
Next N300,000 = 11% = N33,000
Next N500,000 = 15% = N5,100
Next N500,000 = 19% = N0.00
Next N1,600,000 = 21% = N0.00
Above N3.2m = 24% = N0.00

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Total annual tax due is N59,100, while total monthly tax due is N4,925.

The Effective Tax Rate (ETR) is determined by this formula:

Total Annual Tax Due / (divided by) Annual Gross Salary x 100

Therefore N59,100 / N1,200,000 x 100 = 5%

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To arrive at the tax payable by the employee in our case, you would be required to apply 5% ETR on your preferred method.

5% of N60,870 = N3,043.5

5% of N64,515 = N3,225.75

#HRwithEM
We have come to end of today's #HRwithEM #TwitterSession and I believe that we have done justice to the question of the week.

I look forward to having you again next weekend same day, same time!
Thank you to everyone who contributed in making this #TwitterSession a success.

Send in your burning #HR questions to enmichael@enmichael.ng, and join me next weekend on Twitter to learn how I would handle such a situation.

Have a beautiful weekend!

#HRwithEM
The END
*Updated:
The major reliefs for this employee are:
Pension (8% of N1.2m) = N96,000
NHF (2.5% of N1.2m) = N30,000
Consolidated (N200,000 + 20% of N1.2m) = N440,000.

Taxable Pay is therefore:
N1,200,000 - N556,000 = N634,000

#HRwithEM
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