On a pay stub, “retro” is short for retroactive pay: money your employer owes you because you were paid at the wrong rate during a past pay period. It appears as its own line because it isn’t wages for the work you did this period; it’s a correction for a previous one. The most common cause is a raise that took effect on paper before payroll actually updated your rate.
Retro pay is not the same thing as back pay. Back pay generally refers to wages you never received at all, such as pay owed after a wrongful termination.1U.S. Department of Labor. Back Pay Retro pay assumes you were paid for your hours, just at the wrong rate.
Why Retro Pay Shows Up on a Check
The classic trigger is a delayed raise. A promotion or salary bump has an effective date, but payroll doesn’t get the new rate into the system until a pay period or two later. The employer then owes you the rate difference for every hour worked in the gap. A $2.00-per-hour raise that lags two full pay periods on 80 hours of work is $160 in retro pay.
Other frequent causes:
- Shift differentials that were processed at your base rate instead of the premium rate for evening, overnight, or weekend hours.
- A cost-of-living adjustment announced with a January 1 effective date but implemented in February, generating a retro payment for January.
- A miscalculated commission or nondiscretionary bonus. Because nondiscretionary bonuses are part of your regular rate of pay under federal law, correcting one can also affect overtime for the same period.2U.S. Department of Labor. Fact Sheet 56C – Bonuses Under the Fair Labor Standards Act (FLSA)
- A union contract settled after the old one expired, with new wage rates applied back to the expiration date.
The Overtime Piece Most People Miss
A retroactive raise doesn’t just mean extra straight-time wages. If you worked overtime during the retro period, your employer also owes you additional overtime pay on top of the straight-time correction. Federal regulations say a retroactive increase raises your regular rate for the entire period, so overtime has to be recalculated at 1.5 times the new rate.3eCFR. 29 CFR 778.303 – Retroactive Pay Increases
In practice: a $1.00 retroactive raise across 10 overtime hours owes you $1.50 per overtime hour, not $1.00. If the retro line on your stub doesn’t reflect that bump on your overtime hours, the payment is short. Check any pay period in the retro window where you logged overtime.
Federal rules also require the retroactive overtime payment be made no later than the next regular payday after the employer can reasonably compute it.4eCFR. 29 CFR 778.106 – Time of Payment
How to Check the Amount Yourself
The math is simple once you have the inputs. You need three things:
- The date the pay change was supposed to take effect.
- The date payroll actually started paying the new rate.
- The difference between the old and new rate.
Multiply the rate difference by the number of straight-time hours worked in the gap. For any overtime hours in that same window, multiply the rate difference by 1.5. Add the two figures. That’s the gross retro amount before taxes.
Worked example. Your rate should have gone up by $1.50 an hour. The correction covers three weeks in which you worked 110 straight-time hours and 12 overtime hours. The calculation is (110 × $1.50) + (12 × $2.25) = $165.00 + $27.00 = $192.00 gross. If the stub shows a different figure, pull your timesheets for those weeks and compare line by line.
How Retro Pay Is Taxed
The IRS treats retro pay as supplemental wages, the same bucket as bonuses, commissions, and overtime.5Internal Revenue Service. 2026 Publication 15 That classification gives your employer two ways to withhold federal income tax on it.
Flat-Rate Method
Most employers withhold a flat 22% for federal income tax on the supplemental payment. A $500 retro payment loses $110 to federal withholding under this method. The flat rate applies as long as your total supplemental wages for the year stay under $1 million; above that threshold, the mandatory rate is 37%.5Internal Revenue Service. 2026 Publication 15
Aggregate Method
Some employers combine the retro payment with your regular wages for that pay period and run the total through the standard withholding tables. This often withholds more, because the inflated total looks, to the tables, like your normal earning rate. Your annual tax bracket doesn’t actually change, and any overwithholding comes back at filing time.
Social Security and Medicare
Whichever income-tax method your employer uses, Social Security tax at 6.2% and Medicare tax at 1.45% come out of retro pay just like regular wages.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Two situations shift that math. In 2026, Social Security tax only applies to the first $184,500 in earnings, so a retro payment landing after you’ve crossed that cap won’t have the 6.2% taken out.7Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security And once your wages for the year pass $200,000, an extra 0.9% Additional Medicare Tax applies to every dollar above that line, which a large retro payment can trigger.
Which Year’s W-2 It Goes On
Retro pay shows up on the W-2 for the year you actually receive it, not the year the underpaid work happened. A retro payment in January 2026 covering hours from November 2025 lands on your 2026 W-2. That can matter at filing time if the correction crosses a year boundary.
If the Retro Amount Looks Wrong
Start with payroll. Most retro errors come down to a wrong effective date, missing hours, or overtime that wasn’t recalculated. Bring your timesheets, the document showing your rate change (offer letter, promotion notice, union contract), and your own calculation of what you’re owed. These are usually data-entry mistakes and get corrected in the next cycle once someone flags them.
If your employer agrees you were underpaid but stalls, federal rules require payment no later than the next regular payday after the amount can reasonably be computed.4eCFR. 29 CFR 778.106 – Time of Payment
If the employer refuses, you can file a wage complaint with the Department of Labor’s Wage and Hour Division online or by calling 1-866-487-9243.8Worker.gov. Filing a Complaint With the U.S. Department of Labors Wage and Hour Division (WHD) A successful claim can recover the unpaid wages plus an equal amount in liquidated damages. The statute of limitations for recovering unpaid wages is two years, or three years if the violation was willful.9U.S. Department of Labor. Enforcement Under the Fair Labor Standards Act