Definition of Back Pay:
Back pay encompasses any outstanding payment for work done prior to the present pay period that should have been made to employees but wasn't for whatever reason. These reasons may include forgetting to pay an employee or misplacing paperwork. An employer may also willfully withhold payments. Back pay can also be described as the difference between what an employee was paid and what they should have been paid.
Back pay is linked to wage violations and should be paid as soon as possible to avoid legal actions. An employee may be entitled to back pay because of a retroactive increase or wrongful termination and is entitled to wages for any unpaid regular hours worked, overtime hours worked, past salaries, commissions, benefits, bonuses, or paid time off.
Paying Back Pay:
Back pay can be paid two ways:
- By running a separate payroll for the missed wages or benefits. In this case, the pay stub should be labeled "Back Pay" to avoid confusion.
- Adding the back pay wages to the next regularly scheduled payday. Employers should identify the back pay amount on the pay stub.
However, when paying back pay, an employer must withhold the normal payroll taxes and is responsible for the employer portion of the payroll taxes. As back pay is deemed to be a supplemental wage, withholding income tax depends on how you made the back payment:
- For separate payrolls: a flat 22% in income taxes should be withheld.
- For combined back pay and normal wages: use the sum to figure out the appropriate income tax withholding.
Back Pay vs. Retro Pay:
Back pay encompasses payment for missed wages or benefits that should have been paid in the first place, while retroactive (retro) pay is used to correct payroll mistakes and miscalculations.
Consequences of Not Paying Back Pay:
If an employee is owed back pay and does not receive it, the employee may file a complaint of Fair Labor Standards Act (FLSA) violations with the Department of Labor's Wage and Hour Division. If the Department of Labor agrees with the employee, the following consequences may arise:
- The employer may be ordered to pay the back pay by the Department of Labor.
- The employer may receive an injunction from the Department of Labor against future violations of the FLSA.
- The employer may be sued by the Secretary of Labor for back pay wages as well as an amount to cover damages.
- The employer may be sued by the employee for back pay, damages, attorney's fees, and court costs.
How is back pay calculated?
Why did I get back pay?
An employee may receive back pay for a retroactive increase or wrongful termination, or for unpaid wages for:
- Regular hours worked.
- Overtime hours worked.
- Past salary.
- Benefits and bonuses.
- Paid time off.
What is back pay for unemployment?
Back pay for unemployment includes any unpaid wages and benefits up to the date of termination that is owed to the employee.
Is back pay mandatory?
Yes. An employer could face legal actions for not paying an employee's due back pay.