What is back pay in the UK?

Back pay is something many of us have likely seen mentioned on a payslip at some point throughout our working lives.

The mention of backpay often comes with questions. Usually from employees wondering what it is, why it is written on their pay slip and what it is for.

But back pay is rather simple, and it’s not something to worry about.

In this article, let’s explore the topic of back pay together. To give you a greater understanding of what this is, how it works, and when it may apply to your business.

The definition of back pay

Back pay is a payment of money owed to an employee by an employer for work they have completed in the past.

Avoiding common payroll errors can help prevent you from having to calculate back pay. However, as we know, human error cannot always be helped. Which means you may encounter one-off situations where payment of back pay is required.

An example of a back payment

 A common example of when back pay would be paid is when an employee is not paid for overtime they have worked.

In the next pay period, the employer must calculate this, paying the employee the correct amount of money for the overtime they have worked (this may include an overtime rate).

When do employers have to pay back pay?

It doesn’t matter how it happens, if an employee is not paid what they are owed, the employer is legally required to pay back the employee the full amount.

Back pay calculations and payments should be handled by your payroll department, payroll provider or the team/person who handles payroll in the business.

Employees are entitled to back pay in several situations that may have resulted in underpayment or missed payment. Back payment isn't always the result of a mistake or an intentional act, it can happen in several situations, for example when:

• Admin errors occur

• Overtime has not been recorded

• National minimum wage was miscalculated or not paid

• Pay increases had not been processed within the payroll system ahead of pay day

• Holiday pay calculations were wrong

No matter what the reason, back pay is required to compensate for these errors, mistakes and mis-payments.

What does the law say?

If an employee is not paid what they are owed, an employer is likely to face legal action.

With consequences including:

• Financial penalties

• Compensation requirements for staff

• Employment tribunals

• Potential criminal charges

By not paying your staff accurately and calculating back pay in order to cover any missing payments, you could find yourself in hot water with HMRC and at an employment tribunal.

Methods of payment

Back pay is usually paid via usual methods of payment. Paid directly into the bank account of the employee.

It should be displayed separately on the payslip of the employee. highlighting how much back pay they are receiving and the pay period this is referring to.

How to calculate back pay for different types of employees

Depending on how your staff are paid, back pay calculations will differ.

For example, a salaried staff member vs a staff member on an hourly pay rate.

Often it is easier to calculate back pay for an hourly rate.

In this instance, you would calculate the number of hours an employee has not been paid for and make the back payment during the next pay period. If this includes overtime, be sure to calculate an overtime rate (if applicable).

For example:

Employee Judy is paid £15 per hour

• They work 30 hours a week

• Last week they worked 40 hours

• At an overtime rate of 1.5 times the normal hourly rate (£22.50/hour)

• The overtime payment was missed from their last pay

The next pay period requires back pay to be paid

This will be a total of £150 (pay for 10 hours) + £75 (overtime rate for 10 hours) = £225 (total back pay)

Back pay for a salaried worker is slightly different and will require a few extra calculations.

For example:

Ben earns £50,000 per year

• They receive a monthly salary of £3,293.30 per month over 12 months

• Their weekly rate works out at £759.99 per week

• Working 5 days this means their daily rate is £152 per day

With these figures it’s easier to calculate how much an employee is owed.

Ben was not paid for two days of work last month, which means they are owed this in back pay.

2 x £152 = £304 (the total amount of back pay owed)

Tax on back pay

Back pay is treated the same as a salary payment. So, tax and NICs will be deducted from this payment through the PAYE system. This should also be displayed under the deductions on the payslip.

If an employee is on an emergency tax code i.e. Week 1 / Month 1 and they pay more tax because of backpay being processed, the payroll system won’t adjust any over deduction in the following pay period. While ever they are on Emergency Tax, payroll systems calculate the tax that’s due in period. We recommend employees regularly review their tax code and contact the HM Revenue and customs to get their coding fixed where necessary.

How payroll software can help you calculate back pay

Payroll software takes the headache out of handling pay. Instead, software tools like BrightHR’s payroll software can automate calculations and processes for you. Making sure you get employee pay right first time.

And when back pay is required, the software can calculate this for you, ensuring that even the right amount of tax and NIC is taken too.

Consult a professional payroll team for advice

Complex back pay situations can cause payroll panic. So, it’s always worth consulting a professional to make sure you’ve got your calculations right.

With the support of a managed payroll service and a CIPP-qualified payroll team you can avoid common payroll mistakes. Reducing the risk of failing to pay staff accurately and keeping you compliant with the law and HMRC.

BrightHR’s payroll services help you handle pay the smart way. With risk-free payroll management, you won’t have to worry about back pay issues. Instead, you can reduce time spent on payroll admin and get back to what matters most—running your small business.

Book a free payroll demo today to discover all the features and tools our payroll services offer.