What is Back Pay?

Back pay is unpaid financial compensation owed to an employee by an employer. It includes the discrepancy between what the employer paid the employee and the amount the employer was required to pay according to the contract, law, or minimum wage/overtime guidelines. The pay may consist of salary, hourly wages, overtime, fees, bonuses, or commissions and is linked to the penalty the employer must pay due to a wage violation case.

How is Back Pay Different From Retroactive Pay?

Back pay is different from retroactive pay, which is money the employer owes the employee for underpayment based on the work already performed. Some people may not distinguish between back pay and retroactive pay as it is not strictly defined or regulated.

What are the Penalties?

Employers may be sued for back pay by affected workers or the government for failure to pay correct wages, based on the Fair Labor Standards Act (FLSA). Legal actions for lawsuits may include paying legal fees, compensating for other damages, or additional penalties as part of the settlement. The FLSA offers several methods to recover back pay. The statute of limitations for FLSA claims is two years, which may increase to three years in intentional or willful violation cases.

Back pay is an essential term for HR professionals to understand how to compensate employees accurately and avoid wage violation cases, which may result in lawsuits and financial penalties.