Meaning of Arrearage: Definition & Payroll Context
Arrearage, commonly referred to as arrears, denotes payments that are overdue or scheduled for payment after a defined period. It applies to any financial obligation—such as rent, loan installments, utilities, or wages—that was originally due earlier.
Key Definitions:
- Arrearage refers to an amount not paid by its due date.
- Paid in arrears means payment is made after a service is delivered or a pay period ends—not necessarily late if it follows agreed terms.
Usage in Payroll:
Most organizations operate payroll in arrears, meaning employees are paid after they complete a pay period. For example, an employee works January 1–15 but receives payment on January 20. This approach avoids estimating hours, allowing accurate calculation of wages, taxes, overtime, PTO, and commissions.
What Are Salary Arrears?
Salary arrears occur when an employer owes wages for work already done—often due to retrospective salary increases, missed allowances, or payroll errors. The owed amount is then added to a subsequent paycheck.
Why Arrearage Matters:
- Supports accuracy in wage processing, especially when hours fluctuate or adjustments are required.
- Prevents overpayments or corrections after the fact.
- Maintains transparency when restoring delayed or corrected compensation.
Advantages and Considerations:
- Pros: Greater payroll accuracy, time to process changes before finalizing pay, reduced risk of overpaying.
- Cons: Employees may experience a delay in receiving pay and may require explanation to support budgeting.
