Retro Pay

What is Retro Pay?

Retro pay, short for retroactive pay, is the difference between what an employee was paid and what they should have been paid during a previous pay period. It is typically issued as a lump sum on a subsequent paycheck once the discrepancy has been identified.

Why Retro Pay Matters

Common reasons for retro pay include delayed salary increases, late approval of promotions, collective bargaining agreements applied retroactively, or simple payroll calculation errors. The adjustment must account for the correct gross amount as well as any corresponding changes to taxes, benefits deductions, and retirement contributions.

Payroll teams should process retro pay promptly to maintain employee trust and ensure compliance with wage and hour regulations that require timely and accurate compensation.