Pro rata is an adverb or adjective meaning in equal portions or in proportion.[ Farlex's The Free Dictionary Article is available to subscribers only.] 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 American English, this term has been as prorated or pro-rated.
Meanings
More specifically,
pro rata means:
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In proportionality to some factor that can be exactly
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To count based on an amount of time that has passed out of the total time
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Proportional ratio
[ Investigator web site. Accessed May 29, 2008.]
Pro rata has a Latin etymology, from , according to, for, or by, and , feminine ablative of calculated (rate or change).[ The Free Dictionary. Accessed May 29, 2008.]
Examples
When liability for a
toxic tort or a defective product concerns many manufacturers, the
legal liability under
tort law is allocated pro rata.
Examples in
law and
economics include the following, noted below:
Partnership liability
Each of several
partnership "is liable for her 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."
[ ClickDocs UK Legal web site (quote marks changed to italics for clarity).]
Bankruptcy law
When a
debtor files for
bankruptcy, and "the debtor is insolvent,
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
Annual leave time are typically calculated on a pro rata basis.
[John Steven Niznik, Pro Rata, at Job Search Tech web site.]
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."[ US Department of Commerce Office of Human Resources Management official web site, citing 5 CFR 630.204.]
The American Federation of Teachers (AFT), a United States labor union, argues that all part-time or adjunct instructors should get pro-rata pay for teaching college courses.[ California Part-time Faculty Association official web site page regarding pro-rata pay ]
Ireland secondary school teachers are entitled to pro rata pay for part-time work.
Under United Kingdom employment law, "Regulations state that, where appropriate, the pro rata principle should be applied to any comparison ... to be given ... holiday."[ NASUWT web site Holiday is used here in the British sense of the American vacation.]
Likewise, in Tasmania, Australia, the law clearly grants workers the privilege of part-time benefits for leave of absence.[ Tasmanian Legislation online official web site]
Investment laws
In
corporate practice, "a pro-rata dividend means that every shareholder gets an equal proportion for each share he or she owns."
[ Investopedia web site. Accessed May 29, 2008.]
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."
[ AVC.com web site. Accessed August 20, 2015.]
Insurance
In
insurance,
pro rata is used to determine
risk based on the time the
insurance policy is in effect.
[ InsuranceZA web site] 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. This calculation is referred to as a "wheel calculation".
College tuition
When a
college student withdraws, colleges may refund tuition payments on a pro rata basis.
Aviation
In the
United States, a private pilot may pay no less than the pro rata share of the total price of the flight when carrying passengers.
[ 14 CFR ยง 61.113 (c)]
Automobile
Pro-Ration (pro rata) means if the battery fails anytime within the first two years of service, it is replaced for free. After those first two years, a pro-rated fee is assessed for the replacement. However, the pro-ration (pro rata) is typically calculated from the date the battery was sold.
See also
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Employee Retirement Income Security Act
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Legal liability
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Pro rata cancellation
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Pro rata condition of averages
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Vesting
