What Is Retro Pay?
Retro pay, or retroactive pay, refers to compensation owed to an employee for work performed during a previous pay period. This typically occurs when an employee was underpaid or received delayed wage increases, bonuses, or adjustments not reflected in their regular paycheck.
Why Does Retro Pay Happen?
Retroactive pay is often triggered by payroll errors, late salary increases, backdated promotions, collective bargaining agreements, or misclassified hours. If the correct compensation wasn’t processed in time, employers must issue the difference in a future paycheck.
How to Calculate Retro Pay
To calculate retro pay, subtract the amount originally paid from what the employee should have earned. Multiply the difference by the number of affected pay periods. This ensures accurate payment adjustments while maintaining compliance with labor laws.
Examples of Retro Pay
Retro Pay vs. Back Pay
While both involve owed compensation, retro pay typically covers pay adjustments due to changes in rate or status, while back pay usually results from legal rulings or wage disputes related to unpaid work.
Best Practices for Employers
Employers should audit payroll regularly, document changes clearly, and communicate with employees about any retroactive adjustments to avoid confusion and legal issues.
