What is Back pay?

Definition and examples of Back pay
By Abhishek Kathpal Updated 28 July, 2022

In any organization, employees are entitled to a variety of forms of compensation that make up for any past underpayments of salary, bonuses, incentives, or prizes. And to fairly progress, an employee is given back pay for past jobs done.

What is Back pay

Back pay meaning and definition

Back pay is the balance owed to an employee after they have received a salary. Back pay makes up any difference between what the employer paid an employee and what the employer was required to pay under a contract or by law by minimum wage and overtime rules. Back pay is frequently related to the fine an employer must pay as a consequence of a wage violation lawsuit and might include salary, hourly wages, overtime, fees, bonuses, or commissions. All employees, including those paid a salary, those paid an hourly wage, independent contractors, and freelancers, are entitled to back pay. It could result from work that was done but never compensated for.

How is back pay calculated?

Except when it is for a pay rise, in which case it should be based on the new wage rate, back pay is computed at the same rate as a regular paycheck. The Fair Labor Standards Act (FLSA) has mechanisms for obtaining back pay, including minimum and overtime wages that have not been paid.

Reasons for Back Pay

Typically, back compensation is ordered in response to claims of wrongful dismissal. However, regardless of whether the violation was intentional, you may be entitled to back pay for any kind of underpayment. However, underpaid workers, subjected to discrimination, or passed over for promotions may also be eligible for back pay. Other explanations why you might be due back pay include:

a) Breaches of the minimum wage

b) Overtime without pay

c) Unpaid commissions or bonuses

d) Tip theft and wage theft

e) Misclassification (categorizing hourly workers as salaried workers)

f) Pay disparity or promotion discrimination (for example, if you are passed over for promotions due to membership in a protected class).

g) Accounting mistakes

Back Pay vs. Retroactive Pay

Similar to back pay, retroactive pay is money that an employer owes a worker for already completed work. Retroactive compensation compensates for underpayments, whereas back pay is for unpaid work. To put it another way, retroactive pay is the difference between what was paid and what was due.

About the Author

Abhishek Kathpal

Abhi is the co-founder at Longlist.io. Funded by US based OnDeck, Longlist is currently enabling 50+ businesses to increase their candidate and client reach outs, automating the workflow across stages.

More like this: