Glossary term
Retroactive pay
Correction for prior-period underpayment.
Definition
Retroactive pay (often shortened to retro pay) is a correction issued in a later paycheck to compensate an employee for an underpayment in a prior pay period. Common triggers include a delayed merit-increase effective date, a reclassification from non-exempt to exempt (or vice versa), a missed shift differential, or a payroll-system error. Retro pay is taxed as supplemental wages and may be withheld at the IRS's flat 22% supplemental rate or aggregated with regular wages, depending on the employer's processing choice.
Example
A 4% raise effective January 1 but processed in March generates retro pay covering January and February.
Related terms
- Pay period — The recurring window of time covered by a single paycheck.
- Pay frequency — How often paychecks are issued.
- Payday — The calendar day wages are deposited.
- In arrears — Wages paid after the pay period ends.
- Biweekly — Every other week — 26 paychecks per year.
- Semimonthly — Twice per month on fixed dates — 24 paychecks per year.
See also
- Pay schedule calculator — convert salary to per-paycheck amount
- Pay frequencies primer — weekly, biweekly, semimonthly, monthly
- Frequently asked questions