Understand What Pro Rata Is, The Types, How It Works and The Calculation!

The search for financial stability in companies involves monitoring some fundamental indicators on a daily basis. One of them is pro rata. Have you heard of it?

This is an important calculation, whether for taking care of labor matters or for maintaining the financial organization of your business . If you are not yet familiar with it or have questions about it, the ideal is to try to understand this indicator better.

In this post, we will explain it, highlight in which cases it can be applied, how to adopt it, among other points. Keep reading!

What is Pro Rata?

Pro rata refers to a proportional calculation method for a payment that can be applied to different contexts. It can even be defined as a way to ensure fairer payment for services and thus avoid conflicts between the parties.

For example: when you sign a service provision contract with a company and the company does not comply with the agreement on an ongoing basis, you can request pro rata payment. In other words, you can request payment only for the days in which the service was available.

A very common case involves Internet connection services. When the unavailability lasts for hours, the amount charged must be reduced proportionally. This may also apply to your business.

Let’s assume, for example, that a company has contracted your transportation service for a delivery to a warehouse. But, while the cargo was in transit, a change of route was requested to a final post.

The increase in value can be made proportionally — this is called pro rata. In practice, the organization will bear the difference related to the new distance that will be traveled. Likewise, if the situation involved the opposite, the value initially agreed could be reduced proportionally to the shortened distance.

Pro rata may also include, for example, the reduction or increase in amounts paid to employees, considering the time they were absent or the number of overtime hours. However, we will understand later in which cases this is applicable.

What are the Types of Pro Rata?

There are two types of pro rata that can be applied: “temporis” and “die”. Below, learn more about each of them.

Pro Rata Temporis

In this case, the division of the full amount is made in relation to a period of time. For example: if we are talking about the proportional payment to a company’s employees with respect to the period of admission to the business, this is the type of pro rata that will be “triggered”.

Again, let’s make an assumption: if a person has worked ten days in a month, the proportional payment per day worked will be calculated based on dividing the total amount into daily allowances. This will allow us to identify the amount proportional to the days worked.

Pro Rata Die

In this case, the calculation is made using the interest established in the contract with the other party. Pro rata die is often used, for example, when there are late payments for a service. Thus, each day of delay represents an increased percentage of the total amount of the debt.

In Which Cases is Pro Rata Applied?

There are several possible applications of pro rata. In general, they will depend on how your company operates and the circumstances in which it is used. Below are some examples!

In Consumption

In this context, pro rata is widely used in the service provision area, as it is an interesting pricing method for the client. Do you remember the example we gave about Internet consumption? As mentioned, we were talking about a very common case of its application.

Another pricing strategy may involve, for example, contracting a transportation plan from a retail company for your business (or even for you, as a freelancer), covering the movement of goods from the warehouse to a specific depot. This way, it is possible to create a service provision contract whose amount to be paid is proportional to the use of what was contracted.

In The Finance Department of a Company

Another way of adopting pro rata involves the financial control of a business. In this case, it is a way of calculating dividends for a period among shareholders so that it is possible to ensure proportional division according to each shareholder’s participation.

Similarly, the pro rata is related to the interest on customer debts. In practice, it can then provide for collection in an appropriate manner.

In Labor Matters

As mentioned, pro rata is also widely used to calculate the proportional payment to professionals who worked temporarily. The same applies to determining the correct amount to be paid to a specific employee, if they were hired in the middle of the month, for example.

This makes it possible to guarantee the rights of the professional in a safe and efficient manner, avoiding legal problems that could harm your business. Furthermore, calculating the pro rata helps to maintain more efficient financial planning on these issues.

How Does Your Calculation Work?

Calculating pro rata temporis is simple, as it can be done based on the rule of three. To do this, it is important that you define the period that will be taken into consideration in the specific situation.

For example: if a freight transport driver’s salary is R$2,000 (based on 30 calendar days) and the professional was hired on the tenth, the calculation will be done as follows:

R$ 2,000 – 30 days

R$ x – 10 days

By resolving this rule of three, we see that the person will receive, for that month, R$666. In other words, it is possible to guarantee a payment proportional to the days worked, also ensuring a fairer perspective.

In pro rata die, since it involves the incidence of interest, the calculation takes into account the increase in the days related to the case.

Let’s assume that a customer of your business has to pay a bill for a service provision of R$1,000. In this case, let’s also consider that there is a simple interest rate of 1% per day of delay. If the person makes the payment three days late, the amount owed will be R$1,030.

Have you noticed how understanding pro rata can help you better manage your finances and achieve greater stability in your company? In practice, this also provides more efficient day-to-day management, regardless of your area of ​​activity. Therefore, pay attention to this and incorporate this calculation when necessary.