Contractor Pay Guide

What is Pro Rata Pay?

"Pro rata" essentially means "in proportion." For contractors, pro rata pay refers to earnings calculated for a portion of a full working year or a non-standard number of working days/hours. This is common for:

• Short-term contracts (e.g., 3-month or 6-month projects).
• Contracts starting or ending part-way through a tax year.
• Working a specific number of days within a longer period.

Understanding pro rata pay is crucial for accurate income forecasting and tax planning.

How to Use the Contractor Pay Guide Calculator for Pro Rata Estimates

Our main IR35 Calculator can help you model pro rata scenarios effectively. The key is to accurately set the parameters that define your contract's duration and how your rate is annualized.

1. Contract Value & Period

• If your contract specifies a total value for a fixed duration (e.g., £20,000 for 3 months), you can enter this. However, for more accurate pro rata tax calculations based on annualized income, it's often better to use a daily or hourly rate if known.
• If you use a daily or hourly rate, ensure the "Contract Value Period" reflects this.

2. Adjust "Working Days Per Year" (Crucial for Pro Rata)

This setting, found under "Calculation Settings," is the primary way to model pro rata scenarios for daily or hourly rates:

• For a specific number of contract days: If your contract is for exactly 100 days, set "Working Days Per Year" to 100. The calculator will then annualize your daily/hourly rate based on these 100 days to determine an "annual equivalent" gross income for tax band purposes.
• For part-year work: If you plan to work, say, for 9 months of the tax year (roughly 9/12 * 220 standard working days = 165 days), enter 165.

This input directly influences how your daily or hourly income is scaled up to an annual figure, which is then used for tax and NI calculations. Pension and salary sacrifice contributions made periodically (daily, weekly, hourly) will also be annualized based on this number of working days.

3. Hours Per Day (If Applicable)

If your "Contract Value Period" is "Per Hour," ensure "Hours Per Day" (under "Calculation Settings") accurately reflects your contractual daily hours. This, combined with "Working Days Per Year," determines the total contractual hours used for annualization.

4. Interpreting the Results

When you adjust "Working Days Per Year" for a pro rata scenario, the "Detailed Financial Breakdown" table will show:

• Yearly figures: These represent the annualized equivalent based on your specified working days. For example, if your day rate is £500 and you set "Working Days Per Year" to 100, the "Yearly Initial Contract Value" will be £50,000. This £50,000 is the income figure used to calculate annual tax and NI.
• Periodic breakdowns (Monthly, Weekly, Daily, Hourly): These will also be derived from the annualized figures. The "Daily" take-home pay shown will be your net pay for one of your actual working days within that pro rata period.

Your actual total take-home pay for the contract period would be the "Daily Take-Home Pay" multiplied by the number of days you actually work (e.g., your input for "Working Days Per Year"). Or, you can approximate by looking at the "Monthly" figures if your contract spans several full months.

Example: 3-Month Contract

Let's say you have a 3-month contract at £450 per day. A typical 3-month period might have around 60-65 working days.

1. Enter £450 as "Contract Value" and "Per Day" as the period.
2. Set "Working Days Per Year" to (e.g.) 63.
3. Complete all other relevant details (IR35 status, region, pensions, etc.).
4. Click "Calculate."

The "Yearly" figures will show what your income and deductions would be if you earned at that rate for 63 days. Your actual earnings for the 3-month contract will be closer to the daily take-home pay multiplied by 63.