Pro-rata is an adverb or adjective, meaning in proportion.[1] The term is used in many legal and economic contexts.
Meanings of Pro-rata
More specifically, Pro rata means:
- In proportion to some factor that can be exactly calculated. [2] [3]
- To count based on amount of time that has passed out of the total time.
- Proportional Ratio [4]
Pro-rata has a latin etymology, from pro, according to, for, or by, and rata, feminine ablative of calculated (rate or change). [5] [6]
Examples
Examples in law and economics include the following noted below.
Torts
When liability for a toxic tort or Products liability concerns many manufacturers, the liability under tort law is allocated proportionally. [7]
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." [8]
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." [9] "A creditor of an insolvent estate is to be paid pro rata with creditors of the same class." [10]
In the U.S. Bankruptcy Court practice, the creditors often agree to settle for a pro-rata share at the so-called 341 meeting of creditors, named for the section of the Bankruptcy Code, without a formal hearing before a judge, and sometimes without even a trustee present.citation needed
Worker's pay and benefits
A worker's part-time work, overtime pay, and vacation time are typically calculated on pro rata basis. [11] [12] [13]
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." [14]
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. [15] This is an important issue, as of 2007, for part-time faculty. [16]
Irish secondary school teachers are entitled to pro-rata pay for part-time work. [17]
Under British employment law, "Regulations state that, where appropriate, the pro rata principle should be applied to any comparison ... to be given ... holiday." [18]
Likewise, in Tasmania, Australia, the law clearly grants workers the privilege of part-time benefits for leave of absence. [19] [20] This is granted under the Long Service Leave Act 1976. [21]
Investment laws
Under the Blue Sky Laws, the Uniform Commercial Code's usage of trade, and industry practice governing a wide variety of investments, interest and dividends are divided pro-rata.citation needed
In corporate securities practice, "a pro-rata dividend means that every shareholder gets an equal proportion for each share he or she owns." [22]
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)." [23]
Insurance
In insurance, pro rata is used to determine risk based on the time the insurance policy is in effect. [24] It may also be used to describe proportional liability when more than one person is responsible for a loss or accident. [25]
College tuition
When a college student withdraws, colleges almost always refund tuition payments on a pro-rata basis. [26]
References
See also
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