Legal Dictionary

pro rata

Legal Definition of pro rata

Etymology

    Latin Origin

Adverb

  1. To divide proportionate to a certain rate or interest.

    Example: If a company with two shareholders, one with 20% and the other with 80% of the shares, received a gift of $10,000 and desired to split it "pro rata" between the shareholders, the shareholder with 20% of the shares would receive $2,000 and the 80% shareholder, $8,000

Alternative forms

  • pro-rata

Related terms


Definition of pro rata

Etymology

    Latin pro, according to + ratus, calculated

Adverb

pro rata (not comparable)

  1. (of an allocation) In proportion to some factor that can be exactly calculated.

    Tenants who have given 30 days' notice who do not leave on the last day of the month will be credited on a pro rata basis.

    The workers' overtime is calculated on pro rata basis.

Further reading

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.

Meanings of pro rata

More specifically, pro rata means:

  1. In proportionality to some factor that can be exactly calculated.
  2. To count based on amount of time that has passed out of the total time.
  3. Proportional Ratio

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.

Torts

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 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, 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)."

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.

References:

  1. Wiktionary. Published under the Creative Commons Attribution/Share-Alike License.



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