Back pay is a term often used in labor law to describe the wages and benefits that an employee should have received for the period of time they worked but were not paid.
The back pay calculation takes into account not only the lost wages but also any interest, penalties, or attorney fees that may be owed. In some cases, back pay can even include damages for emotional distress.
The importance of back pay cannot be overstated. It is one of the most important tools available to employees who have been wrongfully terminated or denied overtime pay, minimum wage, or other benefits.
In this article, we will explain how back pay is calculated in detail. We will also discuss some of the factors that can affect the back pay calculations and how to calculate retroactive pay.
Understanding back pay
Back pay is any money an employer owes an employee for work that was performed during a prior pay period.
Specifically, back pay is a means for an employer to rectify a payment error or wage infraction, whether intentional or not. Hourly workers, contractors, freelancers, and salaried employees are all eligible for back pay.
Back pay can be owed for a variety of reasons, including:
- Unpaid wages
- Unpaid overtime hours
- Unpaid commissions
- Unpaid vacation time
- Unjust termination
- Denied benefits
Employees can also earn back pay if they have transitioned from a role where they were paid by the hour to a salaried position.
Union employees can receive back pay from an employer if the contract stipulates a pay increase. In some instances, the labor department can oversee the back pay process to ensure employees receive withheld wages.
How to calculate back pay?
Back pay calculations change depending on whether an employee is paid hourly or on a salary.
Calculating back pay for hourly employees involves:
- Calculating the number of hours worked (adding up the number of hours an employee is owed back pay for)
- Multiplying hours worked by the hourly rate of pay
- Adjusting for overtime if needed
Here is an example of back pay calculation for hourly employees:
An employer is conducting layoffs, and an employee making $20 per hour is fired in February of 2021. An employee, believing the terms of their employment contract has been violated, files a claim against their employer.
The case concluded in October 2021 when a judge ruled in favor of an employee and ordered the employer to pay the employee.
In this case, the employer is required to issue back pay for the employee’s wages from February to October 2021.
Assuming the employee has worked full-time, the calculation would go as follows:
$20 per hour x 40 hours x 4 weeks = $3, 200 per month
$3, 200 per month x 8 months = $25, 600 in back pay
This way, the employer who has wrongfully terminated an employee is required to pay them $25,600 in back pay for those eight months of unpaid wages.
Here is an example of back pay calculation for salaried employees:
The process of calculating back pay for salaried employees, on the other hand, is somewhat different.
An employer first needs to:
- Determine the number of pay periods they have in a year
- Divide an employee’s wage by the number of pay periods to figure out the amount they make each pay period
- Multiply this amount by the number of pay periods the employee is owed back pay for
Let’s say an employee earns $60,000, and there are 52 pay periods. The calculation goes like this:
$60,000 salary / 52 pay periods = $1,154
$1,154 per pay period x 16 pay periods = $18,464
According to this calculation, the employer who has wrongfully dismissed an employee is required to pay them $18,464 in back pay for the 16 pay periods of unpaid wages.
It is important to note that in both cases, the employer may also need to factor in employee benefits. Benefits are part of workers’ compensation, and they need to be included in back pay.
What are the factors that can affect the back pay calculations?
A number of factors can affect back pay calculations, including:
- The type of violation
- The jurisdiction
- The statute of limitations
- Whether the employer acted willfully or not
The type of violation is perhaps the most important factor in back pay calculations. For example, employees who are owed back pay for unpaid wages will typically receive a different amount than those who are owed back pay for vacation time.
The jurisdiction is also important. Different states have different laws regarding back pay, so an employee in New York may be entitled to a different amount than an employee in California.
The statute of limitations is another important factor. In most cases, employees have two years to file a back pay claim. However, this timeframe can be shorter or longer depending on the jurisdiction and the type of violation.
Finally, whether the employer acted willfully can also affect back pay calculations. In general, employees are entitled to a higher amount of back pay if the employer knew that they were violating the employment law but chose to do so anyway.
Calculating retroactive pay
Although people tend to mix the two, retroactive pay differs from back pay. As established, back pay is when an employer owes an employee wage they didn’t pay, while retroactive pay is when an employer has paid an employee less than what they should have.
When calculating retro pay, an employer should use their gross pay and withhold taxes after. Here is an example of calculating retro pay:
An employee earns $10 per hour on a weekly basis. In this instance, they have worked 45 hours during a week, but instead of receiving overtime compensation for the remaining five hours, they have been paid their standard rate.
An employer should first calculate how much they’ve paid the employee in gross wages for the week ($450).
Next is to calculate how much an employer should have paid the employee in overtime wages. The overtime rate is 1.5 times the regular rate of pay.
$10 x $1.5 x 5 = $75
Lastly, an employer should subtract what they’ve paid the employee from what they should have paid them to determine retroactive pay.
$475 – $450 = $25
What can a wronged employee do?
First, the employee will need to gather evidence to support their claim. This evidence can include pay stubs, timesheets, bank records, and any other documentation that shows how much the employee should have been paid.
Next, the employee will need to calculate their back pay. This calculation will take into account the number of hours worked, the hourly rate, and any overtime or commission rates that may be owed.
In some cases, the back pay calculation may also include interest, penalties, or damages for emotional distress.
Finally, the employee will need to submit their back pay claim to the employer. If the employer does not voluntarily agree to pay the back wages, the employee may need to file a lawsuit.
It is important to note that back pay claims can be complex, and it is always advisable to consult with an experienced attorney before taking any legal action.
Back pay is any money an employer owes an employee for work that was performed during a prior pay period. The back pay calculation process depends on a number of factors, including the type of violation and the jurisdiction.
It also depends on whether the employee is salaried or hourly.
If you believe you are owed back pay, it is important to consult with an experienced attorney who can help you calculate the amount of back pay you are entitled to and determine the best way to get what you are owed.
To find out whether you have a back pay case worth pursuing, feel free to contact Cilenti & Cooper today. We treat every case with the attention and care it deserves and can fight for your civil rights from beginning to end. We offer a free consultation to all of our prospective clients, so you have nothing to lose.