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Retro Pay | Meaning and Definition

What is Retro Pay?

Retro Pay or Retroactive Pay Meaning simply corresponds to the compensation included in the paycheck of an employee to make up for a previous pay period’s compensation shortfall. This is different from what is called back pay. Back pay simply stands for the compensation that makes up for an employee’s paycheck of the period during which he received no compensation at all.

The calculation of Retro Pay is as important as sending it out as soon as possible. It keeps the satisfaction of the employees maintained while keeping the organization on the good side of the labor laws.

 Payroll Mistakes requiring Retro Pay

Many of the time, compensation changes that are not reflected in the payroll cause a shortfall in compensation. Certain examples of mistakes requiring Retro Pay are given below:

  •       Commissions – Clients who pay late might delay funds delaying the commission payment.
  •       Raises – After giving a pay raise to an employee and failing to adjust the final payment.
  •       Overtime – Failing to multiply 1.5 by the hours worked by an employee as overtime.
  •       Shift differentials – Failing to pay extra to the employee working outside of his/her normal shifts.


Laws and Retro Pay

Certainly, in some circumstances, the employer is taken to court by the employees for Retro Pay. The situations may include:

  •       During retaliation.
  •       Violation of overtime.
  •       Discrimination on the basis of gender, status, race, religion, or age.
  •       During breach of contract.
  •       During violations of minimum wage.
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