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Proration in QuickBooks Online Payroll

by Intuit•5• Updated 4 months ago

Proration is the process of adjusting an employee's salary to pay them for only a portion of a pay period.

QuickBooks Online Payroll automatically calculates this adjusted, or prorated, salary. This happens if an employee starts a job or takes statutory leave in the middle of a pay period. The calculation considers their work schedule and the actual days they worked, so you don't have to do it manually.


Key rules for proration

  • Proration applies to Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Sick Pay (SSP), and New Starters.
  • It applies to salaried employees only.
  • Proration is not applied to leavers. This must be completed manually using the Edit Hours function on the Run Payroll Screen.
  • Proration also applies to employees who are not eligible for statutory pay.

How proration works with statutory pay

Proration is auto-calculated within QuickBooks Online Payroll from the start date entered for:

  • New Starter: Start date/hire date in the employee details.
  • SMP: Start date of the SMP leave (requires valid average weekly earnings).
  • SPP: Start date of the SPP leave (requires valid average weekly earnings).
  • SSP: Start date of the SSP leave (this also prorates when waiting days are considered).

Proration is also auto-calculated at the end of statutory leave but requires a manual end date to be entered for SMP, SPP, and SSP.

Note: If you don't enter an end date, the product will end the leave at the maximum allowed period and will still prorate the salary.

To qualify, employees must:

  • Earn an average of at least ÂŁ123 per week.
  • Give the correct notice and proof they are pregnant.
  • Maintain continuous employment for at least 26 weeks into the 'qualifying week' (the 15th week before the expected week of childbirth). This is 41 weeks of service by the baby's due date.

Find out more about Statutory Maternity Pay (SMP) and Statutory Paternity Pay (SPP).

To qualify, employees must:

  • Be classed as an employee and have done some work for you.
  • Earn an average of at least ÂŁ123 per week.
  • Have been ill for more than 3 days in a row (including non-working days).
  • Agency workers are also entitled to Statutory Sick Pay.

Find out more about Statutory Sick Pay (SSP).


Handle statutory leave with no pay

If an employee’s statutory leave extends beyond the first pay period and they aren't receiving statutory pay or a salary, follow these steps to avoid producing a zero net pay payslip.

  1. Navigate to the relevant employee profile.
  2. Select Edit in the Pay Types folder.
  3. Make a note of the current Pay type and Salary.
  4. Change the Pay Type to Hourly.
  5. Change the Rate per hour to ÂŁ0.01.
  6. Select Save.
  1. When you run the next payroll for the employee, select Regular Pay hours.
  2. Change to 1 hour.
  3. The gross pay will update to ÂŁ0.01.
  4. You can then reverse this ÂŁ0.01 using your journals.
  1. When the employee returns from leave, navigate to their employee profile.
  2. Select Edit in the Pay Types folder.
  3. Change the Pay type to Salary.
  4. Enter the contractual salary for the employee.
  5. Select Save.
  6. The salary will then be automatically prorated for when the employee returns to work.

Edit hours when proration is applied

You can edit or reduce an employee's hours when proration is applied.

  1. Go to Run Payroll.
  2. Navigate to the relevant employee.
  3. Select Actions.
  4. Select Edit hours worked.
  5. Select Edit employee hours for this pay period.
  6. Reduce the total hours as required. Note: This must be a positive amount.
  7. Select Apply. This will update the salary on the Run Payroll screen.

Example: The employee has SMP leave but also has some unpaid time. You can reduce the hours, and it will calculate the salary based on the SMP start date and the reduced hours.

Note: Proration will apply whether your payroll is automated or not.