Definition
On Step 3 of the contractor's new hire flow, there is a question on "First payment amount." This question will appear under the following conditions:
- You are hiring a contractor at a fixed rate
- Their start date is not the first of the month
The "First payment amount" refers then to how you want to prorate the first month's payment.
Proration
There are a number of different ways to prorate. The Oyster app uses the "daily rate" proration:
There are ~260 working days in the year. To calculate a daily pay rate, take total annual pay divided by 260. Then, you can multiply this daily rate against the number of working days during that pay period.
For instance, if a contractor is starting work on June 14, you would calculate the first payment amount for the period of June 14-30.
In this case, let's say the contractor would be paid:
- $5,000 fixed pay per month, which is $60,000 per year
- $60,000 divided by 260 days = $230.7692 daily rate
If the contractor is working 13 business days from June 14th - June 30th, then the "First payment amount" is $3,000, which equals the daily rate (~$230) times the number of working days (13).
