Payroll How-To
How to process retroactive pay
When retro applies
- A raise applied a period late
- A misclassified pay rate corrected
- An underpayment correction
- Negotiated back pay
Run it with the RETRO code
Add a RETRO earning line, which requires a reason, for the back-pay amount. It’s taxed as current-period wages against the correct year-to-date accumulators, so wage-base caps and the Additional Medicare threshold stay exact even though the pay relates to an earlier period.
The other direction
To claw back an overpayment or dock unpaid time, use a REDUCTION line (negative, reason required) which reduces gross before tax math. It’s the honest counterpart to back pay.
Post and reconcile
After the run
- Retro appears as its own line on the stub and trace
- It flows into remittances and the GL export like any earnings
- Year-end wages include it automatically
- The reason is on the record for audit
Questions people ask
How do I pay retroactive wages?
Add a RETRO earning line, which requires a reason, for the back-pay amount. It’s taxed as current-period wages against year-to-date accumulators.
Is retro taxed for the period it was earned or paid?
When it’s paid, at current rates, adding to the same YTD ledger so wage-base caps and thresholds stay exact.
How do I claw back an overpayment?
Use a REDUCTION line, negative and reason-required, which reduces gross before tax math.
Is the reason recorded?
Yes. The RETRO code mandates a reason, so every back-pay adjustment carries a documented justification for audit.
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Back pay, done by the book
Run retro with a required reason and cap-exact taxation.