Retroactive pay
Retroactive pay, or retro pay, is the difference you owe an employee for past work when a rate change should have applied earlier.
- LAW
- 29 CFR 778.303 (FLSA overtime)
- BOUNDARY
- Every workweek the new rate covers
- PREMIUM
- 1.5 × the rate difference per overtime hour
- WATCH FOR
- One rate difference times a rough total of hours
Retro pay corrects the gap between what an employee was paid and what the updated rate should have produced. It covers every pay periodPay period. A pay period is the recurring block of time, such as a week or a month, for which you calculate and pay wages.Click to open the term the new rate should have reached, not only the current one. A retroactive increase also lifts the regular rate for the period it covers. So a 10-cent hourly raise owes 15 cents more for each overtime hour, whatever you and the employee agreed.
When does retroactive pay come up?
Retro pay starts with a rate that should have applied earlier than it did.
| TRIGGER | WHAT HAPPENS |
|---|---|
| Late raise | A raise approved partway through a pay period, or one that takes effect before payroll processes it |
| Union settlement | A new agreement often sets rates back to a date before it was finalized, sometimes months earlier |
| Payroll error | A rate entered wrong at hire, or a shift differential left off a paycheck, with no raise involved |
How is retro pay calculated?
For a salaried employeeSalaried employee. A salaried employee is paid a fixed amount each pay period, generally the annual salary divided evenly, rather than a rate times hours worked.Click to open the term, you pay the difference between old and new salary for the affected period as a lump sum. For a non-exempt employee, prorate a lump sum over the hours of the period it covers, like a bonus. That finds the higher regular rate for each workweekWorkweek (FLSA). A workweek under the Fair Labor Standards Act is a fixed, regularly recurring period of 168 consecutive hours used to compute overtime.Click to open the term in it. Retro pay often spans several past pay periods. A clear record of when each rate change took effect keeps the adjustment correct.
- 01
Identify the affected pay periods and work through each one, rather than multiplying one rate difference by a rough total of hours.
- 02
For each period, multiply hours worked by the difference between the old and new rate.
- 03
Bring each overtime hour to at least 1.5 times the difference in those workweeks, counting the step 2 amount for that hour, since a retroactive raise lifts the regular rate of pay behind the overtime premium.
- 04
Check shift differentials and bonuses tied to base pay, which may need the same recalculation.
- 05
Pay the correction on the next paycheck or as an off-cycle payment. The choice follows your policy and any state rule on when underpaid wages are due, not convenience alone.
Frequently asked
- 29 CFR §778.303, Retroactive pay increases
- 29 CFR §778.106, Time of payment
- Publication 15 (2026), (Circular E), Employer’s Tax Guide
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.