What does retro pay mean

If an employer is caught paying employees under the table for less than minimum wage, a judge may require the employer to issue retro pay. If an employer pays workers less than the FLSA minimum wage, they may be subject to retro pay.

Per the Economic Policy Institute , roughly 2. With QuickBooks, you can streamline your payroll system and accounting to avoid errors from the start and, if needed, resolve them with ease. Plus, access features like free cash flow reporting to set the stage for financial growth, and enjoy a user-friendly experience that saves on accounting time. We provide third-party links as a convenience and for informational purposes only.

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Address Optional. City Optional. How did you hear about us? Forgot password? Do you want to get notifications from this site? FEB 15, How to Calculate Retro Pay As with any payroll process, calculations depend on several factors, though these are often fairly simple to determine. Salaried Employee Though the process of calculating retroactive pay for salaried employees is similar, there is an extra step. No One-Size-Fits-All Approach Of course, these examples are purely hypothetical and simplified to explain the process.

Interesting post? Share it on social networks: Share Share Share. First Name Last Name. City Optional How did you hear about us? Sometimes you accidentally underpay your employees. Retroactive pay refers to pay that you owe an employee for work they did in a previous pay period. You would owe an employee retroactive pay if you paid them less than what you should have paid them. For example, say that you have an employee named Todd. In the last two weeks, Todd worked a total of 80 hours.

However, due to a payroll mistake, you only paid Todd for 70 hours of work. Retroactive pay is used as a correction when you paid an employee less than they should have earned.

Back pay corrects any type of missed wages. Retro pay is money that you owe your employees because you underpaid them in a previous pay period. Retroactive pay is usually necessary because of simple human error with payroll.

However, there are some cases where a court can legally order a business to provide retroactive pay. When you pay employees retro pay, you still need to withhold payroll tax. For tax purposes, retroactive pay is treated as supplemental wages. Supplemental wages are wages that employees receive in addition to their regular income. If you employ anyone into two simultaneous roles, each with differing salary expectations, miscalculations may arise.

Your payroll will need to dynamically process both rates to arrive at a single wage, to prevent the need for retro pay adjustments. To calculate gross retro pay, figure out the difference between what an employee was paid in a payroll period and what they were owed including any supplemental pay.

Lastly, remember to assess the number of affected payroll periods, because this will influence the payable sum owed to an employee. All affected periods will require retro pay. Retroactive pay adjustment is actually quite rare.