What is retroactive pay?

Retroactive pay refers to wages or salary that is paid to an employee for work done in the past but was not paid at the time it was earned. This often occurs when an employee's pay rate is increased and the employer agrees to pay the difference for work completed before the increase took effect.

Retroactive pay can also be awarded in cases where an employee's pay was miscalculated or underpaid, and the employer is rectifying the mistake by paying the employee the amount owed for past work.

It is important for employers to clearly communicate any changes in pay rates to employees and ensure that retroactive pay is calculated accurately and paid in a timely manner. This can help maintain trust and transparency in the employer-employee relationship.

Retroactive pay may be subject to taxes and other withholdings, similar to regular wages, and should be documented and reported accordingly. It is important for both employers and employees to keep records of retroactive pay payments for future reference.