What is back pay?
Compensation owed to an employee that was not paid. It typically consists of unpaid wages, missed overtime, bonuses, PTO, or commissions. Whatever the reason, it’s important employers are aware of how to calculate and pay it.
In addition, if a judge rules you wrongfully terminated an employee, they may require that you give them their job including back wages. In 2019, the Department of Labor collected $322 million in unpaid wages so it’s important to get right.
How to get unpaid wages
The Fair Labor Standards Act (FLSA) lists three methods for recovering unpaid wages:
- Supervision from the Wage and Hour Division
- The Secretary of Labor can bring suit for unpaid wages and damages or file an injunction for violating FLSA
- An employee can file a private lawsuit for unpaid wages, damages, and court costs
Back pay vs retro pay
These terms are often used interchangeably but they are different. Backed pay is the missed wages owed to an employee, while retro pay is the difference between the wages that should have been paid and the actual wages paid. Retro pay can be used to correct previous wages.
How to pay unpaid wages
If an employer owes an employee wages, there are a few ways the owed wages can be paid:
- The employer can run a separate payroll for the missed wages
- Wages are included on the next paycheck
When including missed wages on a paycheck, make sure that you label it so it’s clear to the employee what it is.