Pro rata

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Pro rata is an adverb or adjective, meaning in proportion.[1] The term is used in many legal and economic contexts. It is sometimes spelled pro-rata, but this is technically a misspelling of the Latin phrase. In North American English this term has been vernacularized to prorated.

Meanings

More specifically, pro rata means:

  1. In proportionality to some factor that can be exactly calculated.[2][3]
  2. To count based on amount of time that has passed out of the total time.
  3. Proportional Ratio[4]

Pro rata has a Latin etymology, from pro, according to, for, or by, and rata, feminine ablative of calculated (rate or change).[5]

Examples

Examples in law and economics include the following noted below.

Torts

When liability for a toxic tort or a defective product concerns many manufacturers, the liability under tort law is allocated pro rata.[6]

Partnership liability

Each of several partners "is liable for his own share or proportion only, they are said to be bound pro rata. An example ... may be found in the liability of partners; each is liable ... only pro rata in relation to between themselves."[7]

Bankruptcy law

When a debtor files for bankruptcy, and "the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. If the debtor has any remaining funds, the money is divided proportionately among the creditors, according to the amount of the individual debts." [8] "A creditor of an insolvent estate is to be paid pro rata with creditors of the same class."[9]

Worker's pay and benefits

A worker's part-time work, overtime pay, and vacation time are typically calculated on pro rata basis.[10][11]

Under US Federal regulations, a government worker has the right such that: "When an employee's service is interrupted by a non-leave earning period, leave is earned on a pro rata basis for each fractional pay period that occurs within the continuity of employment."[12]

The American Federation of Teachers (AFT), a US labor union, argues that all part-time or adjunct instructors should get pro-rata pay for teaching college courses.[13] This is an important issue, as of 2010, for part-time faculty.[14]

Irish secondary school teachers are entitled to pro rata pay for part-time work.[15]

Under British employment law, "Regulations state that, where appropriate, the pro rata principle should be applied to any comparison ... to be given ... holiday."[16]

Likewise, in Tasmania, Australia, the law clearly grants workers the privilege of part-time benefits for leave of absence.[17][18] This is granted under the Long Service Leave Act 1976.[19]

Investment laws

In corporate practice, "a pro-rata dividend means that every shareholder gets an equal proportion for each share he or she owns." [4]

In banking, "Pro-rating also refers to the practice of applying interest rates to different time frames. If the interest rate was 12% per annum, you could pro-rate this number to be 1% a month (12%/12 months)." [4]

Venture capital

In venture capital, it can refer to the Pro-Rata Participation right and mean "the right to continue to participate in future rounds so that you can maintain your ownership." [20]

Insurance

In insurance, pro rata is used to determine risk based on the time the insurance policy is in effect.[21] It may also be used to describe proportional liability when more than one person is responsible for a loss or accident.[8]

Insurance cancellation method

Calculation of return premium of a cancelled insurance policy is often done using a cancellation method called pro rata. First a return premium factor is calculated by taking the number of days remaining in the policy period divided by the number of total days of the policy. This factor is then multiplied by the policy premium to arrive at the return premium. Traditionally this has been done manually using a paper wheel calculator. Today it is normally done using an online wheel calculator.[22]

College tuition

When a college student withdraws, colleges may refund tuition payments on a pro rata basis.

Billing

Reading a monthly bill for service that would be prorated.

Determine the daily amount of a monthly charge being prorated by dividing it by the number of days in the cycle (30 is normally used by most systems by default). The resulting number is the daily amount. Example: Based on a 30 day bill cycle and a monthly recurring charge of $30, the daily amount is $1.00 ($30/30 days = $1.00). Determine the number of prorated days. The monthly service charges begin the day service is activated. Example: Service starting on the 20th day of a cycle means there are 10 prorated days. Multiply the daily amount by the number of days being prorated. This gives you the total prorated amount. Example: $1.00 x 10 days = $10.

See also

References

  1. ↑ Farlex's The Free Dictionary Article is available to subscribers only.
  2. ↑ Investor Words web site
  3. ↑ Ehrlich, Eugene (1987) [1985]. Amo, Amas, Amat and More. New York: Harper Row. p. 233. ISBN 0-06-272017-1.
  4. 1 2 3 Investopedia web site. Accessed May 29, 2008.
  5. ↑ The Free Dictionary. Accessed May 29, 2008.
  6. ↑ State of Maine government web site pdf file listing of Pro Rata Share Responsibility.
  7. ↑ ClickDocs UK Legal web site (quote marks changed to italics for clarity).
  8. ↑ WWLIA legal web site
  9. ↑ John Steven Niznik, Pro Rata, at Job Search Tech web site.
  10. ↑ TheSite.org web page about pro-rata payment for part-time work
  11. ↑ US Department of Commerce Office of Human Resources Management official web site, citing 5 CFR 630.204.
  12. ↑ AFT web site
  13. ↑ California Part-time Faculty Association official web site page regarding pro-rata pay
  14. ↑ Association of Secondary Teachers Ireland official web site page regarding pro-rata pay
  15. ↑ NASUWT web site Holiday is used here in the British sense of the American vacation.
  16. ↑ Tasmanian Government official web site
  17. ↑ Tasmanian Government official web site pdf file.
  18. ↑ Tasmanian Legislation online official web site
  19. ↑ AVC.com web site. Accessed August 20, 2015.
  20. ↑ InsuranceZA web site
  21. ↑ Online Wheel Calculator
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