What does the first payment amount mean for fixed contractors?

Overview

When onboarding new contractors, there is a request asking for the First payment amount. This request is asking how you want to prorate the first month's payment. There are a number of different ways to prorate, and the two common ways are Daily Rate and Working Days in Pay Period

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Prerequisites 

  • Fixed contractors

  • Starting date is not the 1st of the month

Information

  1. Daily rate

    We have ~260 working days in the year. To get the daily rate, the total annual pay will be divided by 260 for a daily rate and then multiplied against the number of working days during that pay period.

    Scenario
    Contractor starts on the June 14 2021 with a fixed salary of $60,000 per year. We need to calculate the first payment amount for the period June 14 - June 30. Using the information below,

      • Annual Salary is $60,000
      • Monthly Salary is $5000 ($60,000/12)
      • Daily rate is $230.76 ($60,000/260)

      • The month ends of June 30 and from June 14, we have a total number of 13 business days.
      • The first payment amount will be 230.76*13 = approx. $3000
  2. Working Days in the Pay Period

    In this step, you count two parameters

      • the total number of working days (or business days) in the month, and

      • the number of days the contractors will be working.

Divide the number of days the contractors will be working against the total number of working days, and multiply the pay per period (monthly pay)to get the first payment amount.

Scenario
June 2021 has 22 working or business days. The contractor is going to work 13 days from June 14th to June 30th.

The First payment amount will be ((13/22) * 5000) =approx. $2,955 (days worked/ total business day * the monthly pay)



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