Pro rata is an adverb or adjective, meaning in proportion. 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.
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Meanings
More specifically, pro rata means:
Pro rata has a Latin etymology, from pro, according to, for, or by, and rata, feminine ablative of calculated (rate or change).
Examples
Examples in law and economics include the following noted below.
When liability for a toxic tort or a defective product concerns many manufacturers, the liability under tort law is allocated pro rata.
Partnership liability
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."
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." "A creditor of an insolvent estate is to be paid pro rata with creditors of the same class."
Worker's pay and benefits
A worker's part-time work, overtime pay, and vacation time are typically calculated on pro rata basis.
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.
Irish secondary school teachers are entitled to pro rata pay for part-time work.
Under British employment law, "Regulations state that, where appropriate, the pro rata principle should be applied to any comparison ... to be given ... holiday."
Likewise, in Tasmania, Australia, the law clearly grants workers the privilege of part-time benefits for leave of absence. This is granted under the Long Service Leave Act 1976.
Investment laws
In corporate practice, "a pro-rata dividend means that every shareholder gets an equal proportion for each share he or she owns."
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)."
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."
Insurance
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 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.
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.