What Does Prorated Mean?

by Roy Sylvan, Demand Media
    Many financial transactions in our everyday lives may be prorated.

    Many financial transactions in our everyday lives may be prorated.

    If you use something for less time than scheduled, you may be charged only for the time you used it. This is called a prorated charge. Proration means dividing something proportionally, usually based on a unit of time. For example, if a service costs $200 a month but you only used it for half a month, the charge would be $100. You pay the service provider for the amount of time the service was used compared to the cost for the entire time.

    Real Estate

    When buying a house, the buyer is expected to pay a prorated share of property taxes that the seller has already paid for the year. To calculate the prorated charge, determine the property tax paid for the year and divide the tax by 365 days to obtain the cost per day. To calculate the prorated amounts for each party, multiply the cost per day by the days the seller owned the home, then take that figure and subtract it from the yearly total. The result is the prorated tax the buyer owes. The same method can be used to cover homeowner's insurance and HOA fees.

    Employment

    Under state and federal laws, employees usually receive a specified amount of money each pay period, regardless of the number of days worked. Your salary can be prorated if you do not work the entire pay period and the deduction meets the legal requirements. You must be paid the full prorated amount for each day you did work, even if you did not work a full day. For example, if you’re current yearly salary is $48,000, your semi-monthly pay is $2,000. If you quit the job after the eighth day of the pay period, your employer calculates the days you worked compared to the applicable days and pays your prorated share.

    Rental

    The first month’s rent for an apartment you move into on June 10th will be prorated according to the number of days in the month or a uniform 30 days. The uniform 30 days in some rental agreements is called a "banker's month." If your rent is $900 a month and June has 30 days, you will pay for 21 days at $30 a day, or a total $630.

    Household

    Suppose you paid $79 for your home's water filter cartridge. It is guaranteed for three years, but fails after 28 months. To determine the prorated amount you expect to be reimbursed under the warranty, divide the $79 cost by the 36-month warranty period to get the cost per month. Then multiply the monthly cost by the eight months the filter cartridge was no longer functional to obtain the amount of your reimbursement. In this case, the montly cost would be $2.19. When you multiply this by eight months, you should get a refund for $17.52.

    About the Author

    Roy Sylvan has a Ph.D. in communication studies. He directed a large city department of aging, was COO of a consulting company and provided management training to companies and nonprofits. Writing for more than 40 years, Sylvan has authored articles in trade journals, magazines and blogs, and wrote a how-to book on starting a business.

    Photo Credits

    • Jupiterimages/Polka Dot/Getty Images