Pro rata is an adverb or adjective meaning in equal portions or in proportion. The term is used in many legal and economic contexts. The hyphenated spelling pro-rata for the adjective form is common, as recommended for adjectives by some English-language style guides. In North American English this term has been vernacularized to prorated or pro-rated.
More specifically, pro rata means:
- In proportionality to some factor that can be exactly calculated
- To count based on an amount of time that has passed out of the total time
- Proportional ratio
Each of several partners "is liable for [her or 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."
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." "A creditor of an insolvent estate is to be paid pro rata with creditors of the same class."
Worker's pay and benefitsEdit
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."
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. This is an important issue, as of 2010, for part-time faculty.
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)."
In insurance, pro rata is used to determine risk based on the time the insurance policy is in effect. It may also be used to describe proportional liability when more than one person is responsible for a loss or accident.
Insurance cancellation methodEdit
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.
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- 14 CFR § 61.113 (c)