The core idea is simple: divide the full monthly salary by the chosen number of basis days, then multiply by the days the employee was actually on payroll. The method you pick — calendar, working, or fixed-30 — changes the divisor, not the formula itself.
Most Indian companies pick one method in their payroll policy and apply it uniformly. Calendar-day prorating is the most common because it’s the simplest to defend in audits. Working-day prorating is favoured by IT services firms that bill clients on working days. Fixed-30 is used when finance teams want predictable monthly divisors regardless of February or 31-day months.
Whichever method you choose, the same logic also drives full and final settlements, gratuity for partial years, leave encashment, and notice-period recovery. Getting prorating right is the foundation of every other payroll calculation.
Pick one method and stick to it. — Mixing methods inside the same company invites disputes and audit flags.
Document it in the employment contract or HR policy. — The method should be visible to employees before joining.
Treat LOP separately from worked days. — First arrive at days worked, then deduct unpaid leave on top.
Prorate gross, then derive components. — Apply EPF, PT, and TDS to the prorated gross — never to the full monthly salary.
