Back Pay | Meaning and Definition

What is back pay?

Back pay is the unpaid financial compensation that an employee is owed. This can include wages, bonuses, commissions, and other types of compensation. If an employer has failed to pay an employee what they are owed, the employee may be able to file a claim for back pay.

How Back Pay Works?

The Fair Labor Standards Act (FLSA) is a federal law that sets standards for minimum wage, overtime pay, recordkeeping, and child labour. The FLSA provides that most workers are entitled to be paid at least the federal minimum wage.

The FLSA also contains provisions to protect workers who are not paid the minimum wage or not paid overtime. For example, the FLSA prohibits employers from retaliating against employees who assert their rights under the law. Employers who break the FLSA rules may be subject to civil penalties or criminal prosecution.

Back Pay vs. Retroactive Pay

Retroactive pay is often confused with back pay. They are similar in that both involve making up for lost wages, but there are key distinctions between them.

Back pay is calculated based on the wages you earned had you not been unlawfully under organized, discriminated against, or otherwise retaliation. 

Retroactive pay covers the period you performed work but was not paid. In other words, with back pay, you are paid for work you did in the past that you weren’t compensated for, while retroactive pay is given for work you did in the past but haven’t been compensated for yet.

Retroactive pay usually takes the form of a lump sum payment.