Retro pay isn’t some vintage method people paid themselves back in the day. It’s shorthand for retroactive pay, and is simply pay that an employee earned in a previous pay period that they never received.
For example, you’d give an employee retro pay if they earned commissions, a bonus, or if you made a mistake in their initial paycheck that resulted in them getting paid less than what they were actually owed. Keep in mind that retro pay isn’t the same as back wages, which is when you don’t pay a person anything during a particular pay period.Updated October 13, 2017
This article provides general information and shouldn’t be construed as tax advice. Since tax rules may change over time and can vary by location and industry, please consult a CPA or tax advisor for advice specific to your business.