Get Retro Pay Form

To calculate an hourly employee's retro pay, determine how many hours you paid at the incorrect rate. Then subtract this incorrect rate from the proper rate. Multiply this difference by the number of improperly paid hours. The number that results is the employee's retroactive gross wages.

The formula for retroactive pay is Retroactive pay = Amount to be paid for Period X - Amount paid for Period X where X is the number of days for which calculation is being done.

In short, retroactive pay is the money an employer owes their employee for work they did in a previous pay period. So if you paid an employee less than what they expected, then you'd owe them retroactive pay in the future.

Retro pay is used as a correction when you paid an employee less than they should have earned. Back pay corrects any type of missed wages. It refers to any wages you owe your employee when you don't pay them.

It does, however, cap the time after an issue first arises during which an employee can pursue retro pay. This statute of limitations is two years. If you intentionally violated FLSA provisions, this period increases to three years.

The definition of retro pay (short for retroactive pay) is compensation added to an employee's paycheck to make up for a compensation shortfall in a previous pay period. This differs from back pay, which refers to compensation that makes up for a pay period where an employee received no compensation at all.

Calculating retroactive pay for hourly employees You'll need to know the new hourly rate, the old hourly rate, the effective date for the new hourly rate and the number of hours paid at the old rate. To arrive at the gross retro wages, multiply the hours paid at the old rate by the difference in the old and new rates.

To calculate retro pay, subtract what you paid the employee from what you should have paid the employee. Use their gross pay when calculating, then withhold taxes after.