Pro rata is a Latin term meaning "in proportion." It refers to the allocation or distribution of something in proportion to a whole, ensuring each part or person receives a fair share based on their portion of the total. For example, if a salary or bonus is given on a pro rata basis, it means it is adjusted proportionally according to the time worked or the share owned. Similarly, dividends, insurance premiums, or rent can be calculated on a pro rata basis to reflect fair and proportional distribution based on time, ownership, or other relevant factors.
A typical way to calculate pro rata is to divide the specific portion (such as days worked or shares owned) by the total amount (such as total days in a year or total shares) and then multiply by the full amount to find the proportional share. For example, an employee who worked part of the year might get a proportionate part of a full year's bonus based on days worked.
In essence, pro rata ensures fairness by distributing amounts proportionally according to each party's share or time involved.
