What is Back Pay on a Payslip? Everything You Need to Know.
In recognition and compensation of the services rendered, you fairly and justly pay your employees. However, sometimes, there are certain circumstances, which lead to the underpayment of employees who get paid less than what they are owed for the work they do. Notwithstanding the reasons, the employer must compensate the employee for the unpaid earnings in the form of back pay. Now, when an employee receives the wages due for their past work, it is called back pay. Accordingly, In this article, we will outline the fundamentals of what is back pay on a payslip and explain how it works.
Outsource Your Payroll to Experts
Understanding What is Back Pay on a Payslip?
Back pay refers to wages that an employer owes to an employee for work they already completed in the past but were not paid on time. It is also known as arrears or retrospective pay. Alternatively, back pay is the difference between the amounts of what an employer pays to an employee and what they should have been paid.
Notably, if an employee spots or notices a back pay on your payslip, it implies that their employer is compensating them for previous earnings they did not or had failed to pay at the right time. The prime reasons back pay occurs are due to multiple reasons, including administrative errors in payroll, delayed salary increments, unpaid/untracked overtime, or contractual disputes. It signifies that back pay mostly occurs due to unintentional reasons. Therefore, being an employer, if you have accidentally underpaid someone, do not let it work you up and have it sorted the first chance you get. Thus, similar to handling payroll tasks, managing back pay properly can not only ensure a healthy employer-staff relationship but also keep the business finances on track.
Why is Back Pay Important?
Before we discuss how back pay works in the UK, it is important to highlight why back pay is crucial, and employers must fulfil this as an obligation. Whenever an employer underpays an employee, be it accidentally or purposely (which is typically not the case), they are legally obliged to pay them the full amount they are owed.
More importantly, failing to pay employees with a valid and claimed back pay is regarded as a breach of contract. Consequently, the employees in question reserve the right to initiate legal proceedings against you if you owe them back pay yet fail to pay it. Furthermore, HMRC can penalise you for depicting non-compliance with the pay laws. For instance, the Employment Rights Act 1996 mandates employers to pay wages on the agreed-upon payday. Thus, if you fail to pay your employees the minimum wage, you could risk a fine.
Understanding How Back Pay Works in The UK?
Understanding the dynamics of back pay is crucial when understanding what is back pay on a payslip. Whenever an employee is underpaid, irrespective of the reason, they are entitled to claim back pay. Next, the employer will forward this claim to the team dealing with the payment of employees. Notably, this team could comprise an outsourced payroll accountant or the company’s internal finance team. Accidental or unwitting mistakes can occur. However, it is always wise to thoroughly and carefully check all the payments and ensure the submission of accurate timesheets ahead of payroll processing to avert situations leading to back pay scenarios.
Moving ahead, whenever an employee is owed back pay:
- They can first speak to their employer. For instance, if you suspect an underpayment, take it up with your employer or HR department to get it resolved since employers are legally required to pay owed wages.
- Next, you must maintain your payroll records, such as payslips, contracts, and bank statements, to track payments and identify any discrepancies.
- Nevertheless, if implementing the first two choices yields no results, you can report the matter to HMRC. For greater clarity, in the event your employer refuses to correct the underpayment, you can report the issue to HMRC. If the HMRC believes it is a violation of the National Minimum Wage (NMW), it can order the employer to pay the owed amount.
Outsource Your Payroll to Experts
Conclusion:
In the end, back pay on a payslip represents wages that an employer owes to an employee due to payroll errors, late salary adjustments, or contractual miscalculations. Therefore, when a back pay situation surfaces, it is mandatory for the employers to rectify or correct these discrepancies by paying the valid and justified amount owed to the claimant employees. Likewise, employees should also review their payslips routinely, keep track of their earnings, and report any concerns or disparities found regarding underpayment. Alternatively, consulting with a payroll accountant or tax advisor will always be of great help to ensure accuracy in your back pay calculations and compliance with HMRC tax regulations.
Eliminate the Chances of Inaccuracies and Seek Expert Advice with payrollservices.accountants:
Exercising scrutiny while processing the payroll is an effective way to avoid the circumstances which ultimately lead to back pay on a payslip. Nevertheless, it cannot always be seamlessly practised if the team managing the payroll does not comprise the experts. In such situations, it is advised to opt for the option of payroll outsourcing. To this end, skilled and certified accountants at payrollservices.accountants can be your one-stop solution to simplify your payroll processing. By outsourcing the payroll from our competent and proficient team of experts, you will enjoy the benefit of services tailored just according to your business requirements.
We entirely understand how every business structure has unique needs requiring unique solutions. To cater for this, we are offering a range of cost-effective and customised payroll services, including full payroll outsourcing, partial payroll outsourcing, and comprehensive payroll consultation in the UK. Hence, get in touch with us today and ensure accuracy with our regular accounting analysis and detailed insights.
