August 1, 2009
Question – How do I figure the interest that is due to me under the Prompt Payment Law?
Answer – Let’s assume that you’re one of the lucky few who haven’t contracted away your rights under the law. You can sue to be paid the amount that’s due you under your contract, plus pre-judgment interest on the claim according to the New Jersey Prompt Payment Law, N.J.S.A. 2A:30A-1, et seq., at a rate equal to the prime rate plus one percent from and after the day after the required payment date and ending on the day on which the check for payment shall have been drawn (and if no check has been drawn for payment, to the date of judgment). Here is how you calculate pre-judgment interest under the statute.
First, determine the applicable prime rate for the period in question, starting with the earliest rate change applicable to your receivable. The Prime Rate is defined by The Wall Street Journal as “The base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks.” The following table gives an example of the calculation of interest due on a particular principal amount due ($50,710.00) under the New Jersey Prompt Payment Law, based on reported prime rate change dates available on line from FedPrimeRate.com.
In the example calculation below, payment was due on 10/29/05. Interest under the statute starts to run from 10/30/05, the day after payment was due. The table starts with the 9/21/05 rate change which is immediately previous to the start of interest, and figures interest due on the partial period. The table ends with December 16, 2008, the last time the rate changed before the calculation was made. When you do your own calculation, you’ll want to check The Wall Street Journal website for more recent changes in the published rate.
To figure accrued interest for a period for which a particular prime rate (“A”) is applicable, multiply interest rate of prime plus one percent (“B”) by the number of days in the period (“C”) divided by 365, and multiply the product by the amount of principal due (“D”) in the period. Accrued pre-judgment interest under the Prompt Payment Law is figured by taking the sum of interest for all successive periods (E1:E17) from the day after date of breach to date of judgment.
|Date of Rate Change = Rate %||Prime plus 1%||Days in Period||Unpaid Principal||Interest for Period|
|1||September 21, 2005 = 6.75||7.75||21||$50,710.00||21.53|
|2||November 1, 2005 = 7.00||8.00||42||$50,710.00||468.09|
|3||December 13, 2005 = 7.25||8.25||49||$50,710.00||561.63|
|4||January 31, 2006 = 7.50||8.50||56||$50,710.00||661.31|
|5||March 28, 2006 = 7.75||8.75||43||$50,710.00||522.73|
|6||May 10, 2006 = 8.00||9.00||50||$50,710.00||625.19|
|7||June 29, 2006 = 8.25||9.25||446||$50,710.00||5,731.62|
|8||September 18, 2007 = 7.75||8.75||43||$50,710.00||522.73|
|9||October 31, 2007 = 7.50||8.50||41||$50,710.00||484.18|
|10||December 11, 2007 = 7.25||8.25||42||$50,710.00||481.40|
|11||January 22, 2008 = 6.50||7.50||8||$50,710.00||83.36|
|12||January 30, 2008 = 6.00||7.00||48||$50,710.00||466.81|
|13||March 18, 2008 = 5.25||6.25||43||$50,710.00||373.38|
|14||April 30, 2008 = 5.00||6.00||161||$50,710.00||1,342.08|
|15||October 8, 2008 = 4.50||5.50||21||$50,710.00||160.47|
|16||October 29, 2008 = 4.00||5.00||48||$50,710.00||333.44|
|17||December 16, 2008 = 3.25||4.25||1892||$50,710.00||1,115.97|
1 Figured from 10/30/05, the day after payment was due.
2 Figured to date of application, June 23, 2009. As of that date, the U.S. Prime Rate remains at 3.25%.
Accrued interest thus calculated equals $13,955.92 due under the New Jersey Prompt Payment Law. The foregoing is only an example and, of course, the calculation will change on a case by case basis depending on the amount in issue, subsequent payments or charges, and on the time periods. Look for the rates to change over time, and always check the source website to confirm the applicable published prime rate. – RJI