How do I prorate a salary increase when an employee's review period is different from the normal time period we use for such increases?

Employers typically prorate salary increases for those employees hired since the last focal review date. This practice provides newer employees with a proportionate increase amount compared with other employees. The following are the basic steps in calculating the employees’ pay increase appropriate to the period of time they have been employed:

1. Check the terms and follow the organization’s pay increase policy regarding prorating. For example, the policy may have a provision for employees hired midmonth to receive credit for rounding up to the nearest full month.
2. Determine newer employees’ expected pay increase amounts that they would have otherwise been entitled to if they had worked the full year.
3. Count the number of months actually worked, and divide it by the number of months under the current increase policy (typically 12 months).
4. Multiply the result by the increase percentage the person would otherwise be entitled to. This is the prorated increase percentage.

Example calculation:

An employee worked 6 months of the year. The employee would normally receive a 3 percent pay increase had he or she worked the full year.

Six months actually worked divided by 12 months in the review period equals 0.5. Three percent multiplied by 0.5 equals 1.5 percent. The employee in this example would receive a 1.5 percent salary increase.