What is the meaning of “back pay”?
Back pay is the term used to describe the wages and benefits that a company is due to an employee but has not yet paid. It is, in essence, the discrepancy between an employee’s actual compensation and their entitlement.
In certain situations, such as wrongful termination (as opposed to severance amount), failure to give for completed work or paid leave, insufficient overtime compensation as specified by the FSLA, ignoring authorized bonuses or salary increases, or impeding an employee from performing their contractual obligations, employers may be required to reimburse back wages.
Employees have the legal right to request and obtain back pay regardless of whether these infractions are the result of deliberate or inadvertent actions, and whether they are carried out by small or large enterprises.
How does it work?
Occasionally, you may have worked overtime without it being noted on the timesheet. In that instance, you are eligible, and the difference between the amount you should have earned for the overtime and the regular rate of the amount you were promised will be determined. There are situations in which filing a lawsuit is required.
When your employer refuses to provide you the money they owe you, it becomes mandatory. Then, you can use India’s labor laws, such as the Workers Compensation Act of 1923, the Payment of Wages Act of 1936, the Minimum Wages Act of 1948, the Payment of Bonus Act of 1965, and others.
These laws safeguard employees’ interests. It contains measures for recouping back pay, overtime compensation, and underpaid minimum wages. Only you will be able to pursue legal action if you understand how it operates and what laws apply in your area. But you should always strive to resolve conflicts peacefully.
Examples of back pay
Employees may be entitled to back pay for various reasons. For instance, it can occur when a promotion, salary raise, or bonus takes longer to process due to HR delays. It can also arise from payroll errors that result in employees being underpaid. Back pay further includes wages owed for unpaid regular hours, overtime, previous salaries, bonuses, benefits, paid time off, and commissions.
Additionally, employees can claim back pay if they were wrongfully terminated and prevented from completing their duties. The calculation of back pay is typically based on the date of the employee’s termination.
Causes of back pay:
Employees are entitled to back pay for a variety of reasons. The following are a few of the reasons:
Converting an hourly employee into a salaried employee:
There are two groups of employees. The first is the group where workers receive compensation according to the number of hours they put in. Typically, they are referred to as hourly laborers. The second group consists of workers who receive a certain salary at a set time along with other benefits. They are referred to as salaried workers. An employee is entitled to back pay or wages when he is transferred from an hourly to a salaried position.
For example, you were employed on an hourly basis by a company. After a few months, you are promoted to a salaried position with the company. Your employer will pay you extra money based on the type of work you did in the past.
Illegal termination:
There are numerous instances where a firm wrongly fires an individual. In the event that your employer fires you without cause, you are entitled to your back wages. If you believe the termination was unethical, you have the option to file a case against the business.
The court will order the employer to reinstate you if it determines that the corporation is at fault and that you were singled out needlessly and purposefully. In this instance, the back pay shall be computed from the date of termination until the court renders its decision.
Unintentionally late payments:
There may be instances where your employer neglects to pay your overtime, commissions, and bonus. You can request the back pay in following situations. Overtime work is occasionally inadvertently not recorded. Your company will not compensate you for the additional hours you put in because of this entry error.
In certain cases, you might not have received the commission you earned, or your company might not have paid it to you within the pay period. You are entitled to back pay in these circumstances. Additionally, your company will be responsible for paying you back if you were eligible for a bonus but did not receive one.
An increase in the amount paid:
What would happen if the company’s payment policy changed in the last days of the pay period and you were supposed to get paid more? However, you are compensated at the previous rate. In this instance, your employer must reimburse you for the shortfall once you make a claim for back pay. He can include this back money in his next paycheck. Back pay is computed using the new salary rate in the event of a pay increase.
Unfair Employer Practices:
You are entitled to back pay if your employer deliberately creates circumstances that hinder you from carrying out your tasks and responsibilities in an unethical manner. For the time you were not permitted to work, you are entitled to back pay. Additionally, the employer is required to pay back wages without fail if he fails to pay the minimum guaranteed wages to the workers for any cause, including natural disasters or an increase in the workforce. Legal action may be taken against him if they don’t.
Calculating Back Pay
Back pay calculations vary for salaried and hourly employees.
Hourly Employees:
For hourly workers, follow these steps:
- Find total hours worked.
- Multiply hours by the hourly wage.
- Include overtime adjustments if applicable.
For example, if an employee earning ₹500 per hour is wrongfully terminated in January 2024, they can file a claim for unpaid wages. If the case is settled in September 2024 and they win, the employer must compensate them:
- ₹500/hour × 40 hours/week × 4 weeks = ₹80,000/month
- ₹80,000/month × 8 months = ₹6,40,000 in unpaid wages
Salaried Employees
For salaried employees, unpaid earnings are calculated as follows:
- Determine the number of salary cycles in a year.
- Divide the annual salary by the salary cycles.
- Multiply by the missed cycles to calculate the total unpaid earning.
For example, if an employee earns ₹10,00,000 annually and there are 52 payments:
₹10,00,000 ÷ 52 = ₹19,231 per disbursement
₹19,231 × 16 disbursements = ₹3,07,696 in pending salary
Final Thoughts:
The amount that companies have not paid their workers for past labor is known as back pay. Careful consideration and focus are essential when handling issues pertaining to employee compensation. For the HR person to handle the situation appropriately, they should understand what back pay is. You are the only one who can claim back pay if you understand how it operates. In addition to being taxable like regular compensation, it is the sum that your company owes you. Before asserting it, you should be completely informed of the idea to eliminate any possibility of error.