Back Pay

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Back Pay

What is Back Pay?

Back pay is the rectification of wrong done, if any, in terms of any unrewarded or unpaid work of an employee and the employer has to pay it back to the worker.

Employee back pay is the financials to be paid back to the worker by an employer for any unpaid work done by the employee in past, or anything which the employee would have performed if the circumstances had not been that could have not been done, or the compensation would have been made otherwise in any form under any different conditions.

Back pay is the portion, sometimes, which was unpaid earlier for the jobs which were already done by the employees. Or the pay increase which was in the payroll but could not be provided on time due to the financial constraints locally till the funds transferred are from the head offices.

At times, if the errors had been there in the previous months’ salaries, thereafter the rectification is made in present salary as payback or back pay. Other times, if any overtime pay had been the target of mistakes by payroll then doing the things back right needs back pay or back payments to the workers to an improvement and compensatory measure. 

Other types of back pay, except for mentioned above, are commissions, benefits, paid time off, any misclassification (putting an employee of the hourly wage slab into the salaried slot of employee), and bonuses – if any.

What is the difference between the back pay and retrospective pay?

Back pay is, as discussed above, the last reminder of any pay portion. While retrospective pay is the rectification of the error for any incorrect payment in the past. Simply to understand if something remains to be paid (unpaid amounts) due to not a mistake is back pay and when mistakes put their part in payrolls are retrospective or retro or retroactive pay.

Unpaid wages or payments in any financial heads due to retirements or resignations or even firing of an employee, also are under the domain of back pay/back payments/paybacks.

What is the way the back pay works and regulations of FLSA – Fair Labor Standard Act in the United States

Under the United States Fair Labor Standard Act (FLSA) if an employee receives unfair wages according to the job s/he is in or the task(s) has done, s/he can claim the lesser benefit even against the Government-run / public sector organization. The employees can claim back pay via the following mentioned:

  • Department of Labor Wage and Hour Division
  • Secretary of Labor Judgment
  • Judgment of privately done suit by the employee(s)
  • Employers if instructed before for underpayment to employees
  • The statute of limitations for back pay is two years or three years against willful violations 

For lawsuits, the judgments may cover the liquidated damages on part of the employer - if any, legal fees, and any compensation applicable.

How back pays should be practiced as best practice?

As far as the Organizational best practices are concerned in terms of back pay, you should follow the below-mentioned tips:

  • Data accuracy be kept: Keep a track of data about your employees’ payments as per their grades and months paid so that to avoid any discrepancy or back pay remainder
  • Careful Calculations: Do calculations carefully when working on payrolls to avoid misdoing even inadvertently
  • Quick Action: Make appropriate corrections, if required any – if any back pays are owed, do make those in sooner not later and in the upcoming next month’s paychecks to avoid further delays on your part inviting more troubles or any penalties
  • Team working: Make a team for your back pays including Human Resources, accounting, and legal associates to follow the company policies and legal requirements in the right manner as required
  • Regular Communication: Addressing the issues of back pays, make clear and timely communications with your team associates from diverse departments say Human Resources, Accounts, and Legal, to ascertain the back pays are made within timelines given to avoid inviting sufferings
  • Eligibility Criteria Confirmation (ECC): Make it confirmed that the payment is made to the eligible workers as far as the back pays are concerned in terms of the number of hours input, jobs, or tasks carried on as unpaid, etc. Take the managers of the employees eligible back pays in confidence and inform them for actions you are going to take and/or action(s) you have taken so far as the back pay is concerned so that this would be another data check source for error(s) – if any - reduction and/or rectification.
  • Budget Balancing: Get approved from the competent authorities the payment of back pays and balance the budget heads properly for smooth accounting procedures, Standard Operating Procedures, and code of conduct, to follow
  • Records updated: Do update records timey about back pay so that no transaction remains unrecorded. This helps not only the auditing procedures to carry on but also paves the way towards better working practices officially. As an HR professional, keeping a copy of transactional operation regarding back pays, helps you manage your HR budget for now as well as for upcoming financial months and years – you may then call it you are working under the dominion of a well-structured system.