Published On: 23/06/2025By

In the course of employment, it is not uncommon for employees to join or leave a company partway through the month. This could happen due to new hires, sudden resignations, or mid-month onboarding. In such cases, employers are often faced with the question: How should salary be calculated for an incomplete month of service?

Understanding how to accurately and fairly prorate salary not only ensures compliance with Malaysian labour regulations, but also helps maintain transparency and trust between employers and employees.

According to the Employment Act 1955, employers are required to specify the wage period in the Contract of Service. This wage period must not exceed one month.

If the employment contract does not state the wage period, the default wage period shall be deemed as one month. This provides a framework for employers to determine salary entitlements for employees who have not completed a full calendar month of service.

What Is a Prorated Salary?

A prorated salary refers to the portion of an employee’s full monthly salary that corresponds to the number of days worked in a particular month. This method is typically used in cases where:

  • An employee joins the company mid-month

  • An employee resigns before the end of the month

  • There is unpaid leave or other deductions resulting in less than a full month’s work

How to Calculate Salary for Incomplete Month

The salary for a month not fully worked should be calculated using the following standard formula:

Prorated Salary = (Monthly Wages ÷ Number of Days in Wage Period) × Number of Days Eligible in the Wage Period

Let’s break this down:

  • Monthly Wages = Agreed monthly salary as per contract

  • Number of Days in Wage Period = Usually 30 or 31, depending on the month, unless working days are explicitly used

  • Number of Days Eligible = The actual days the employee is entitled to receive salary

Example Calculation

Scenario:

  • Employee’s monthly salary: RM 3,000

  • Wage period: Full calendar month (30 days)

  • Days worked: 15 days

Calculation:
RM 3,000 ÷ 30 × 15 = RM 1,500

Employers may choose to calculate based on calendar days or working days, but this should be clearly stated in the employment policy or contract and applied consistently.

Key Considerations for Employers

To prevent payroll issues, employers should:

  • Clearly define proration rules in the employment contract or employee handbook

  • Be consistent in applying the selected proration method

  • Ensure payroll personnel understand the chosen calculation method

  • Double-check calculations to avoid overpayment or underpayment

A small mistake in payroll can damage employee trust or lead to legal claims, especially when it involves final pay upon resignation or termination.

Why Manual Calculation Isn’t Ideal

Calculating prorated salary manually—especially when dealing with multiple employees, public holidays, leave days, or varying month lengths—can be time-consuming and prone to error. Human error in payroll not only leads to unnecessary corrections but also wastes valuable administrative time.

That’s why businesses are increasingly adopting HR solutions that offer automated payroll processing, ensuring accuracy and saving time.

Streamline Salary Calculations with Pandahrms

With Pandahrms, you can automate prorated salary calculations based on either working days or calendar days, according to your company’s policy. The system integrates leave records, attendance, and public holidays into payroll processing to ensure accurate and compliant salary payments.

✅ Key Benefits of Using Pandahrms:

  • Automated salary proration for new joiners and resignations

  • Seamless integration with attendance and leave modules

  • Clear payslip generation for transparency with employees

  • Saves HR time and reduces risk of human error

Whether you’re a small business or a growing company, Pandahrms provides a reliable, cloud-based HR solution to simplify your monthly payroll process.