What is Back Pay?
Back pay is the amount owed to an employee who has not been paid in full. Back pay is a way for an employer to make up for a payment error or wage violation, whether it was intentional or not. Back pay is available to salaried, hourly, freelancers, and contractors alike.
What is the difference between Back Pay and Retro Pay?
Retroactive pay is similar to back pay in that it is money owed to an employee by an employer for work already completed. Back pay, on the other hand, is for unpaid work, whereas retroactive pay is for underpayment—that is, the difference between what was paid and what should have been paid.
For instance, if an employee was paid for all hours worked but was paid incorrectly, the difference would be retroactive pay. If they were not paid for some hours or did not receive overtime for hours that qualified as overtime, the difference would be considered back pay.
We should also note that some people don't distinguish between back pay and retroactive pay, so this isn't a strictly defined or regulated term.
What are the reasons for Back Pay?
There are a number of reasons why an employee may be entitled to back pay:
1. Unable to finish the job
If an employee was wrongfully prevented from completing a job, they may also be entitled to back pay. For example, if an employer illegally fires an employee, the employee may be entitled to back pay for the time they were unable to work.
2. Switch from hourly to salaried employment
An employer may occasionally surprise employees with unanticipated back pay. For example, if the employee switches from hourly to salaried employment (or vice versa), they may receive some additional pay from their employer based on their previous category of employment.
3. Retroactive compensation for a pay increase
Union members may be eligible for back pay if there are retroactive pay increase provisions when new contract agreements are delayed beyond the expiration date of a prior contract.
4. Employer does not pay the minimum wage
Another common source of back pay is employers' failure to pay at least the minimum wage to the growing number of employees covered by state minimum wage laws.
How to collect Back Pay?
The FLSA establishes several procedures for recovering unpaid minimum and overtime wages.
- Back wages may be supervised by the Wage and Hour Division or the Secretary of Labor.
- The Secretary of Labor may sue for back wages and damages.
- By obtaining an injunction, the Secretary of Labor can stop an employer from violating the FLSA, including unlawful wage withholding.
- An employee has the right to sue for unpaid wages and damages, as well as attorneys' fees and court costs.
If the employee received back wages while under the supervision of the Wage and Hour Division, or if the Secretary of Labor has already filed a suit to recover the wages, they cannot file a FLSA suit.
There is a two-year statute of limitations on recovering back pay, which is extended to three years in the case of willful violations. (A willful violation occurs when an employer intentionally disregards or is indifferent to workplace policies and laws.) Employees will be unable to file a lawsuit if they do not address the issue within the limitation period.