What is retro pay?

Here's some information about retro pay:

Retroactive pay, often shortened to retro pay, refers to the difference between what an employee was paid and what they should have been paid. This typically arises from situations where an employee receives a pay raise or new benefits that are effective retroactively, meaning they apply to a period before the date the raise or benefits were actually implemented.

Several factors can trigger retro pay:

• Union Negotiations: When a new collective bargaining agreement is reached with a union, pay increases are often applied retroactively to the expiration date of the previous contract. (<a href="https://www.wikiwhat.page/kavramlar/Union%20Negotiations">Union Negotiations</a>)

• Salary Adjustments: An employer may decide to implement salary increases that are effective from a previous date, for instance, after a performance review or due to cost of living adjustments. (<a href="https://www.wikiwhat.page/kavramlar/Salary%20Adjustments">Salary Adjustments</a>)

• Incorrect Pay Rates: If an employee has been incorrectly paid at a lower rate than they should have been, the employer is obligated to provide retro pay to correct the error. This includes misclassification of jobs, overtime errors, and other payroll mistakes. (<a href="https://www.wikiwhat.page/kavramlar/Incorrect%20Pay%20Rates">Incorrect Pay Rates</a>)

• New Benefit Implementation: The implementation of new benefits, such as healthcare or retirement contributions, that are applicable to a previous period.

Key considerations regarding retro pay include:

• Taxes: Retro pay is subject to all applicable taxes (federal, state, and local) and deductions (Social Security, Medicare, etc.). Because it can significantly increase an employee's taxable income for the period in which it's paid, it's important to understand the tax implications.

• Calculation: Calculating retro pay involves determining the difference between the old and new pay rates (or benefits) for each pay period within the retroactive period and then summing those differences.

• Legal Requirements: Employers are generally legally obligated to provide retro pay when it's owed due to errors or agreements. Failure to do so can result in legal action. (<a href="https://www.wikiwhat.page/kavramlar/Legal%20Requirements">Legal Requirements</a>)

• Record Keeping: Accurate records of pay rates, hours worked, and any retroactive changes are crucial for both employers and employees to ensure proper payment and compliance.