Retroactive Pay Laws

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What is Retroactive Pay?

In an employment law setting, “Retroactive Pay” refers to pay for work that was already completed in the past, but at a lower hourly rate.  An employee who was underpaid for work may be entitled to retroactive pay to make up for the difference in what they were actually paid and what they should have been paid.

Retroactive pay is much different from “back pay” or “back wages”.  Back wages are paid when the employee was not paid at all for their past services.  In comparison, retroactive pay usually has to do with a difference in pay rates rather than a complete failure to be paid. 

Retroactive pay usually comes into play when there have been newly negotiated pay rates that extend beyond the final date of the previous agreement.  

What is an Example of Retroactive Pay?

A common example of retroactive pay is when an employee is underpaid because they were not paid overtime rates.  If it can be proven that an employer was withholding overtime pay, then the employee may be entitled to retroactive pay to make up for the difference.

Retroactive pay is also common in instances where a pay hike may be attributed in part or in full to past services.  The employee would then be entitled to an amount according to the retroactive pay hike.

How is Retroactive Pay Calculated?

Retroactive pay is calculated according to the difference between what the employee was paid in the past and the amount that they should have been paid.  Unlike with back pay, the employee has already been paid some of the wage amounts.  Therefore, the court’s task is to calculate the amounts that the employee did not yet already receive. 

This means that a court must often examine the employment contracts between the employer and the employee.  The calculations will consider the original agreement in light of the new agreement containing provisions for the pay increase. 

If a contract did not exist, a court can still prove retroactive pay by examining other evidence, such as oral promises or conduct by the employer indicating that the employee was entitled to a pay raise.

Most retroactive pay awards are distributed in the form of a single lump-sum payment. 

Is Retroactive Pay Available in All Jurisdictions?

No- retroactive pay is not required in many states.  In fact, some states actually have laws prohibiting retroactive pay awards, even if an administrative mistake was made. 

Therefore, you may wish to research the laws of your state if you feel that you are entitled to retroactive pay.  And, if you are negotiating a pay raise, you should check to see whether the pay increase will involve retroactive pay.  An experienced employment lawyer can help you clarify the employment laws in your area.

Is it Necessary to Contact a Lawyer for Help with Retroactive Pay?

The laws governing retroactive pay can be very different from state to state.  If you need assistance with retroactive pay or back pay, an employment lawyer can be of much help to you.  A lawyer can help determine whether you are entitled to retroactive pay.  They can also help you draft and review employment contracts, and can represent you in court if legal action becomes necessary.

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Last Modified: 10-12-2011 11:57 AM PDT

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