Home Accounting & Payroll Reasons Why You Have to Back Pay Employees

Reasons Why You Have to Back Pay Employees

by Timesheets.com
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If an employee needs to receive back pay, this means that the employee wasn’t compensated correctly for their work. An employee may be owed back pay for bonuses, promotions, pay increases, or for hours they worked. Whatever the case may be, back pay is something that employers need to take seriously and handle in a timely manner. 

Here’s what you need to know:

What is Back Pay?

Under FLSA law, an employer must compensate an employee for all hours they work. All employers must pay their employees at least minimum wage, abiding by federal and individual state levels. In addition, overtime must be calculated properly in order to comply with the law. If you don’t calculate employee time accurately, which can happen when you don’t have a reliable time tracking system, you may accidentally underpay your staff

Without proper recordkeeping and time tracking methods, you expose yourself to frequent payroll mistakes. Payroll inaccuracies can result in wage violations that cause legal trouble and costly penalties for employers. One penalty that employers face is called “back pay”. Back pay is given to an employee when they are paid incorrectly, or not paid at all, for the hours they worked. Back pay could also include unpaid bonuses, promotions, or pay increases an employee earned. Anyone associated with a company, whether they are salaried, hourly, freelancer, or contractor, are eligible for back pay. To remedy wage violations, an employer typically makes up the cost difference by paying the employee back what they are owed.

Common Reasons Employers Must Back Pay Employees

  • Miscalculated wages: This is typically due to unreliable time tracking methods, such as manually recording employee time on paper or into Excel. When attendance and time off are not tracked correctly, payroll errors are likely to occur.
  • Incorrect implementation of bonuses: This happens when employers promise their employees bonuses but don’t deliver the goods. 
  • Inaccurate overtime calculations: Overtime wages are incredibly important, and when an employee’s timesheet doesn’t display overtime properly or if they aren’t compensated for overtime, they will earn back pay.
  • Commission problems: Employees who earn commission must earn their payment within a timely manner. If an employer misses the payment, employees will earn back pay. 
  • Wrongful Termination: When an employee is terminated from employment under unlawful circumstances.

Fixing Payroll Errors

If you inadvertently make payroll mistakes, there are things you can do to fix them promptly. If not taken care of properly, or in a timely manner, employees can file wage violation claims. These claims are costly for employers and take a while to resolve, so it’s best to try and handle payroll mistakes as soon as possible. Here are two ways to remedy compensation errors:

  1. Run payroll separately and give the employee a paystub with their back pay.
  2. Include back pay along with their next scheduled paycheck.

Whatever you choose to do, make sure that you consult an HR expert in your region or contact your local labor board to find the most lawful way to handle payroll issues in your location.

How an Employee Can File for Wage Claims

If not handled promptly, employees may submit a claim through the Wage and Hour Division (WHD), and the WHD will open an investigation. The DOL says “An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney’s fees and court costs.” 

When the WHD conducts an investigation, they will sort through all your records. This is why it’s important to have time tracking with recorded audit trails, like Timesheets.com. Timesheets.com keeps your records safe for as long as you need, which protects employees and employers alike when issues arise. You should keep your timesheet records for 2 years and your payroll records for 3 years, according to the DOL.

Note: The Department of Labor states that a 2 to 3-year statute of limitations applies to the recovery of backpay.

What Happens When an Employee Files a WHD Claim

If an employee files a claim, there are a few things that can happen:

  • The DOL may enforce the employer to provide an employee with back pay. They may also assist you in ensuring that you won’t violate further labor laws.
  • The Secretary of Labor may sue the employer for back pay violations. This can be pricy because the employer may also have to pay an equivalent amount to cover damages.
  • The employee can sue the employer privately. The employer may have to pay for back pay, damages, and other court costs.

How to Prevent Back Pay Issues

Back pay can be very costly and stressful for both business owners and employees, so it’s best to avoid payroll mistakes. Invest in a time tracking service that tracks employee time accurately, and ensure that your system has a robust audit trail. You’ll want something that records employee names, dates they worked, clock in/out times, overtime calculations, and time-off records. Without these vital timekeeping records, you may find yourself in a pickle when you face wage investigations.

Ready to get started with time and expense tracking? Try Timesheets.com today!

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Sean rehm May 11, 2021 - 9:24 am

I get paid buy weekly and i forget to clock out alote and just realized that im not getting paid for thoes days and am to blame is that rite

Lindsay Sommers May 12, 2021 - 1:31 pm

Hi Sean. Under FLSA rules, an employer must pay you for all hours worked plus any overtime you received. Your employer can’t “dock” you or refuse to pay you because you clocked in late or forgot to clock out. They need to figure out what time you actually worked and pay you for that time. You should speak with your employer or accountant about solving this issue. Keep this as a note to yourself: Always track your time properly so you can protect yourself from underpayments like this!


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