What is pro rata?
Definition of pro rata
Pro rata is the process of dividing a whole amount into portions.
Pro rata is used to ensure that people are given their fair share of a set amount, whether that be a salary, invoice or company profits. Pro rata amounts can be calculated by multiplying the amount you’re looking to separate by the proportion each person or entity is due.
Derived from the Latin term meaning "in proportion", pro rata is commonly used as a verb: “to pro rata a set amount”.
Examples of pro rata in your accounts
- If you employ someone and they join halfway through the month, they would receive a pro rata salary for just half the month.
- If you employ someone on a part-time basis, their wages will be calculated on a pro rata basis, depending on the hours they work.
- If you invoice a client monthly and they terminate the contract part-way through a billing cycle, you would bill them proportionally or “pro rata” for the work they received.
- If you’re a limited company director and start your company part-way through a tax year, the amount of salary you're entitled to free of National Insurance will be reduced proportionally.
- If you use your home as your office, you would proportionally split bills such as rent and electricity based on business and private usage.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.