What is retro payment?

[accounting]

retroactive pay-another term used is retro payment- is a payment given to employees to compensate them on something they were entitled to acquire earlier. Retro payments are normal when increase in wages is not administered in time, there are payroll mistakes, or when contracts are backdated. As an example, given that a new pay rate has started Jan 1, which is a pay month and the pay roll is updated in next pay month Mar (remember pay as you earn) in that case the difference between the Jan pay rate value and the dated one is considered as a retro payment. It is one of the important payroll applications to ensure accuracy and legal requirements.

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