Retaliation: When a business owes wages because they fired an employee for whistleblowing.Breach Of Contract: When a business intentionally pays employees at a lower rate than their contract states.Discrimination: When one group of employees receives preferential treatment over another (i.e., all men receive raises, but no women do).However, there are some cases where a court can legally order a business to provide retroactive pay. Retro pay is usually necessary because of simple human error with payroll. Retro pay is money that you owe your employees because you underpaid them in a previous pay period. The main difference is that back pay is money that you haven’t paid your employees yet. It refers to any wages you owe your employee when you don’t pay them.Įxamples of situations where you might owe back pay include: Back pay corrects any type of missed wages. Retro pay is used as a correction when you paid an employee less than they should have earned. Multiple Pay Rates For Different Positions: If an employee earns two different pay rates, you may have used the wrong rate when calculating their earnings for a given period.īack pay might sound like another way to say retro pay, but they are different.Overtime Miscalculations: You calculated an overtime payment incorrectly.Payroll Errors: You paid for the wrong amount of time or experienced another unexpected glitch.Raises: You gave a raise but didn’t immediately change the rate in your payroll system.Situations that might create a need for retroactive pay include: In this case, you now owe Todd $300 in retroactive pay for the 10 hours you missed. However, due to a payroll mistake, you only paid Todd for 70 hours of work. In the last two weeks, Todd worked a total of 80 hours. Todd earns $30 per hour as a project coordinator. You would owe an employee retroactive pay if you paid them less than what you should have paid them.įor example, say that you have an employee named Todd. Retro pay is unpaid wages you owe an employee from a previous pay period. If so, you will owe them retroactive pay (or retro pay), and you’ll need to make a payroll correction. Sometimes you accidentally underpay your employees. Mistakes happen in business, even with your payroll.
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