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A question came into our blog about the calculation method that should be used to determine how much a salaried employee should be paid in their last paycheck.  The exempt employee only worked a portion of the full pay period before they left the company.  The answer, as well as a sample calculation on how to determine pro-rated final wages, has been provided by an outside human resource and benefits expert.

A salaried employee left our company recently and only worked 5 days of their last 15 day pay period which equals 11 working days.  How should we determine the amount to pay them?  Should we use the calculation of 5 x 1/15th?  Or 5 x 1/11th?  Or a different payroll calculation?

Under the Fair Labor Standards Act (FLSA), a company may make deductions from an exempt employee’s salary for the employee's initial or terminal week of employment if the employee does not work the full week.

In determining the amount of the daily salary to be deducted for absences of a full day or more, the calculation must be based on the usual number of workdays scheduled to be worked by the exempt employee in a workweek, divided into the pro rata monthly salary attributable to a week.  The method used and steps for calculating their pay is outlined below:

  1. The pre-determined monthly salary is multiplied by 12 to find the yearly salary.
  2. The product of that multiplication is divided by 52 (the number of weeks in a year) to find the weekly salary.
  3. The usual number of days (regardless of the number of hours usually worked in any workday) the employee is scheduled to work in a workweek is divided into the weekly salary.

Sample Calculation for an Employee's Pro-Rated Final Wages

Let’s take a look at a sample scenario so you can see how the calculations for an employee's final paycheck are made.

In this scenario, John is paid on a semi-monthly basis.  John’s annual salary is $60,000.00.  He is paid on a semi-monthly basis at a rate of $2,500.00 per pay period ($60,000.00 / 24 pay periods per year).  This is a weekly rate of $1,153.85 ($60,000.00 / 52 weeks) and the daily rate is $230.77 ($1,153.85 / 5 days).

The final pay period encompasses August 1, 2012  August 15, 2012.  John's last day is August 10th.

John would be paid for 8 days of work, as he is not required to be paid after the date of termination.  John's final wages would be $1,846.15 ($230.77 x 8 days).