An employee could be owed back pay for several reasons. If an employee receives a pay increase but the increase is not put into force until several months after the increase, the employee is owed back pay for her salary, which should be calculated at the higher pay rate. Employees who are wrongfully terminated are sometimes reinstated. When this happens, they are owed back pay for lost wages. To calculate back pay you need all of the terms and conditions, including the rate of pay and the time frame for which wages are to be calculated.
- Skill level:
- Moderately Easy
Calculate an employee's rate of pay. If an employee is making £1,300 per month, her annual salary is £15,600. This works out to be £7.50 per hour. Take £15,600 and divide it by 12 to get £1,300 per month. Divide £1,300 by 4.33 weeks in a month, which equals £300.2 per week. When the result is divided by 5, you get £60.0 per day. To get the hourly wage, you divide by 8 hours per day, ($92.37/8).
Determine when a pay raise goes into effect. If an employee receives a pay raise of $.45 per hour on Jan. 1, but the pay raise is not put into the computer system, which activates the raise, until March 1, you can calculate back pay.
Find out the amount of back pay the employee is due. Figure out how much the employee was paid. For January and February, the employee would have been paid £1,300 per month, or a total of £2,600. The employee should have been paid £1,350.90 for each month, (January and February). Take the new hourly wage of £7 per hour and multiply it times 8 hours to get £62 per day. Multiply £62 times 5 days per week to £312. This amount is multiplied by 4.33 to get monthly income of £1,350.90.
Figure out the difference. The amount of back pay owed is £101.9. Take the old amount for monthly income, for two months, and subtract it from the new amount, ($4,156.80 - £2,600).
Tips and warnings
- There may be a different calculation if overtime was worked. Overtime is usually paid at time and a half for any hours worked over 40 per week. Back pay could also be affected by holiday pay.
- The calculations above are for the gross pay, which means no taxes or other deductions are taken out.
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