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Friday, October 15, 2021

What is Retro Pay – Court rulings and when do employers resort to retro pay

Being the owner of a company, it is your responsibility to ensure that every employee gets his correct due and on time. But dealing with payroll mistakes is not unheard of in organizations. Let us say, if you have underpaid one of your employees during the pay period, you must pay them the due in form of retro pay. Let us find out more about it in detail below. 

What is Retro Pay? 

The short form for retroactive pay is known as retro pay. If an employer was not paid his due correctly at any point of time in his previous pay period since the calculation was done incorrectly on his paycheck, the employer is entitled to get this retro payment. Retro pay meaning implies that you are paying the employee the difference between what he is supposed to get and what you have paid. And you must include this payment in his next paycheck. 

Now that you are familiar with what does retro payment mean, let us get into the finer aspects of the same. 

You will find that retro payment is not common for small businesses, nevertheless, it may happen. However, you must make sure that too many pay periods must not have passed since the calculation was done incorrectly and the wrong payment disbursed. The moment you discover the discrepancy, the retro pay must be promptly added to the next paycheck. 


Retro payment – Circumstances that require such payments

Let us find out under what conditions, employers have to compensate employees in form of retro payment. 

1. Pay hike

If for some reason the increased payment details cannot be entered into the database then, the same can be added later. But the hiked payout that is due can be paid in form of retro pay. 

2. Commissions 

People working in the sales and marketing teams are entitled to incentives if they can meet their targets or exceed the same. For such professionals, the incentives are usually not calculated instantly but paid on a later date as retro pay. 

3. Change in shift payments

If an employee is working for a particular shift that pays differently than some other shift and the employee must work for some other shift that has a different payout, the difference in shift payout is paid through retro pay. 

4. Bonus payments

Bonuses are common in organizations. If you have earned a bonus during a pay period but you did not get the amount during that period, the same can be paid later on in form of retroactive payment later. 

5. Working for multiple positions

In any organization, it is quite likely that an employee might have to work for more than one position depending on the requirement of the assignment or the project. 

And if the payment for the two different roles differs, you might get the compensation in form of retroactive pay. 

Court rulings and retro payment

There are few situations when you can take your employer to court in case you fail to receive the due payment you are entitled to. These conditions are as follows-

1. Breach of contract

If your employer had agreed upon in a contract that you will get paid at a negotiated rate and he fails to adhere to the contract. 

2. Discrimination

If you find that a particular sect or group of employees receive partial treatment and you are being treated inappropriately with regards to compensation, based on age, gender, or race, you can drag your employer to the court.

Other conditions include –

  1. Violating overtime compensation contract
  2. Minimum wage violations
  3. Retaliation



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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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