Know your numbers: A complete guide to understanding back pay
Do you remember the first time you left a job? Unless you're just starting, you'd know that quitting a job involves more than packing up and saying goodbye to your colleagues.
If you're seeking employment opportunities, knowing the concept of back pays for a smoother career transition is essential. In Singapore, there's no formal concept of back pay. Yet, understanding its broader implications can help you with a transparent and equitable job transition process.
But what does back pay mean, and how can you correctly calculate it? This article is your complete guide to understanding back pay. In it, we'll discuss the following:
What is back pay?
The meaning of back pay is rather vague. Back pay or last pay refers to the total wages and monetary benefits a former employee should receive from a previous employer regardless of the reason for the separation or termination from work.
While back pay isn’t a concept that exists in Singapore because of its regulations surrounding final pay, it does exist in other countries.
If you're looking for a job in other countries, reviewing that country’s final pay requirements can be helpful, as they each have an approach to final pay. Since back pay has different calculations for different countries, your final paycheck might encompass different things.
Some everyday items calculated into your back pay include:
- Any unpaid salary the employee already earned.
- Cash conversions of any remaining unused leave, including vacation, sick, and other types of leave, depending on workplace policy and the agreement between the employer and employee.
- A Prorated 13th-month pay.
- The cash conversion of unused service incentive leave.
- The separation pay.
- A retirement pay.
- Income tax claim for the excess of taxes withheld, if applicable.
- Any other remaining compensation included in the employee's agreement with the workplace.
- Cash bonds or any form of deposits the employer should return to the employee upon termination.
If it's your first time leaving a job, you might wonder when you'll receive your final pay after your resignation or termination. Some countries have a final pay period within 30 days of separation or termination from work.
Another definition is the payment for work performed but not yet paid for – in short, unpaid wages for hours worked. An example of this is if you worked overtime hours, but your employer denied overtime pay for the work.
Speaking of definitions, here's a clarification on a different type of employee benefit that we often connect, if not confuse, with back pay: retroactive pay.
Back pay is the final amount of an employee's salary and cash benefits that an employee is due upon separation or termination from work. It could also be the unpaid wages an employee should've received for work performed.
Retroactive or retro pay is additional pay based on the difference between what an employee should've received for work they completed and what they received.
Let's again use the example to learn back pay vs retro pay. Back pay is unpaid overtime wages, while retroactive pay is the additional compensation owed to employees who received less than they should've for overtime work.
Reasons you may get back pay
If you're wondering about other reasons for back pay besides an employee leaving a job, they include:
Misclassification of an employee
There are various kinds of employment, each with merits, limits, proper wages, and benefits.
Misclassified employees may not receive full benefits or the proper wage, making them eligible for back wages.
Payroll errors
Employees may be eligible for back wages if they discover a discrepancy due to an honest payment error. An example is when employers pay an employee minimum wage despite the contract stating that they should receive higher pay.
Retroactive pay increases
You recently received a promotion to a managerial role with higher pay. The payment you received for your first month in the managerial role is the same amount that you used to receive in your previous role.
The difference between what you received and what you should've received for your new role is the back pay your employer owes you.
Calculating back pay
Before resigning, knowing how to calculate back pay can help you better prepare for the next step in your career. Assuming you're a regular employee, here are some employee benefits that may factor into its calculation:
Unpaid salary
To calculate your unpaid salary, first work out your daily rate. To do this, multiply your basic monthly income by 12 (months in a year), then divide that amount by 260 (workdays in a year, assuming you work five days a week). The answer is your daily rate.
Let's provide a sample back pay computation. Say your employer pays you twice a month, on the 15th and the 30th, and your gross monthly pay is S$356.83. Your last day of work is November 10th, 2023.
If you multiply S$356.83 by 12, you get S$4282.02. This is your annual pay. Next, divide S$4282.02 by 260, and you get S$16.47, your daily rate.
To calculate your unpaid wage, multiply your daily rate by the number of workdays since your last payment. In our example, you multiply S$16.47 by 9 (workdays), which gives you S$148.22.
Prorated 13th-month pay
Employees know the 13th month of pay as the Annual Wage Supplement (AWS).
To calculate the 13th-month payment, multiply your basic monthly income by the months you've worked throughout the year and divide that amount by 12 (months in a year).
Returning to our example, let's say you've worked in your current role for seven months of the year. Multiply your monthly income of S$356.83 by 7 to get S$2497.84. Then, divide $2497.84 by 12, giving you a prorated amount of S$208.15.
Leave conversions
It’s essential to calculate your leave conversions to ensure you’re compensated.
To calculate your leave conversion, multiply your daily rate by the number of unused days you can convert to cash.
Let's say you still have five unused convertible leave days. Multiply your daily rate of S$16.47 by 5 to get S$82.35, the leave conversion your employer owes for unused leave.
Tax Refund
It refers to withheld taxes above what you should've paid for the year. For simplicity, your excess tax withheld in the year is S$5.95. Once you've worked out these amounts, add them together to get your total back pay.
In our example, an employee whose gross monthly pay is S$356.83, who has worked for seven months a year, and who has five unused leave days may get a total final pay of S$444.67.
Note that these aren't all the benefits that may contribute to your back pay calculation. Depending on your employment policy, you may also need to include retirement pay, separation pay, cash bonds, and other monetary benefits.
Also, remember that your workplace may apply deductions depending on how your employer calculates your pay.
These may include deductions for mandated government contributions, absences, tardiness, loans, and other liabilities that your employer deducts from your salary.
Examples of back pay
To give you a better idea of the different scenarios where you may be eligible for back pay, here are some more examples based on types of employment:
- Salaried employee: Your workplace owes you back pay if you resign or your employer terminates your employment. You may also receive it if you received a promotion but didn't receive the increased wages and benefits that come with it.
- Hourly wages: You may be due back pay for hourly workers if you've worked outside work hours but have unpaid overtime.
- Commissions: Most commission-based roles are in sales. If you earn commission in your role, you may receive back pay from your employer if you've any unpaid commission due to an error on your employer's end.
- Bonuses: It also covers bonuses. If you're due to get a bonus but didn't receive it because of a mistake, you may receive your unpaid bonus as final pay.
Final thoughts
Back pay is the total sum of the wages and other benefits employees should receive from the workplace upon separation or termination. It also covers any payment they're owed but didn't for work performed.
Whichever of these two scenarios applies to you, understanding back wages and how to calculate it ensures that you receive the proper back pay. It can also help you plan for your next career move.
FAQs
Here are some frequently asked questions about back pay:
- What is the process for calculating back pay?
To calculate back pay, add your unpaid wages for the year, pro-rated 12-month pay, leave conversions, and tax refund for any excess taxes withheld.
Consider this will not include your usual monthly deductions. These deductions may include mandatory government contributions, loan payment deductions, and absences or tardiness penalties. - Is back pay taxed?
Most countries treat back pay as salary for tax purposes. Your net taxable income's tax rate determines its payable tax. You can seek tax advice to understand this better. - Is there a process for resolving back-pay disputes?
If you think your employer withholds back pay, contact human resources to discuss your employment contract.
You can file a case if you still haven't received it despite knowing you're entitled. Many countries have a Department of Labour, which often serves as the point of contact for any back pay disputes. - What should I do if I don't receive my pay upon termination?
According to the Ministry of Manpower (MOM), you can contact your employer if you don't receive your salary upon termination.
This will help you understand the reasons for late payment and discuss the regular payment schedule.
If the salary remains unpaid within a week of it being due, you can terminate employment without notice by informing your employer of your decision in writing. You can also consider filing a case with the Tripartite Alliance for Dispute Management (TADM). - What should I do if my employer doesn't pay me and I resign?
In Singapore, you can consider filing a case with the TADM if your employer fails to pay you on time. This includes:
getting paid within seven days from the end of each salary period or
getting paid on the last day of employment upon serving the notice period - Can my employer withhold my final salary payment?
No, your employer cannot withhold your final salary payment. MOM states that you can expect your payment on the last day of employment after completing your notice period.
If you haven't, receiving your final salary may take up to seven days from the last day of employment.
If your employer terminates your contract, you can expect your salary on the last day of employment or within three working days. The same goes for getting dismissed on the grounds of misconduct.
Please consider completing your outstanding projects, assisting team members, and preparing a detailed handover during your notice period. This will also ensure a smooth transition and preserve professional relationships.
