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. There are a number of different ways to prorate. Two of the most common ways include the following.
1. Daily rate
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).
2. Working days in pay period
To calculate "First payment amount" based on working days in pay period, count the total number of working days in the month, and count the number of days the contractors will be working. Divide the number of days the contractor will be working against the total number of working days; then multiply that number by the pay per period to get the "First payment amount."
For example, there are 22 working days in June 2021. If the contractor is going to work 13 days from June 14 to June 30, then the "First payment amount" is $2,954 (13 days worked divided by the 22 total working days in June, multiplied by the monthly pay rate of $5,000).