HR Glossary
Retro Pay

Retro Pay

Updated on:
August 22, 2022


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Table of Content

What is Retro Pay? 

Retro pay is compensation that is paid in advance for work that was performed in the past.

What is the difference between retro pay and back pay? 

The difference between retro pay and back pay is that retro pay is given for work that was already completed, while back pay is given for work that was not compensated at all. Calculating retro pay and sending it out quickly is important to keep employees satisfied and within the law.

Many employees are paid by salary, a wage that they receive each period. For the employee, the salary is the amount that the worker will receive for each period worked. 

Retro pay is paid out by the Human Resources department or Payroll department according to when work was performed.

What Are Some Payroll Mistakes That Require Retro Pay? 

  • Overtime: forgetting to multiply overtime hours by 1.5
  • Shift differentials: failing to pay an increased rate for hours worked outside an employee’s normally scheduled shift
  • Commissions: with some accounting methods, a late-paying client may delay funds for paying out commissions
  • Raises: failing to adjust an employee’s pay rate after giving a pay raise

Retro pay is the process of giving employees compensation for work that was completed in the past. This is often done when there is a change in management or a change in the company's policy. Retro pay is necessary because it ensures that employees are compensated for their work, regardless of when it was completed. This ensures that employees are not taken advantage of and that they receive the full compensation they are entitled to.