October 19, 2026

Last reviewed: 19 October 2026 Payroll errors are more common than most businesses expect — a pay rise applied late, hours missed from the timesheet, or a minimum-wage rate that wasn’t updated in April. When that happens, the shortfall doesn’t just disappear: the employer has to make it up through back pay. This guide explains how to calculate back pay for hourly and salaried employees in the UK, with worked examples using current rates, plus the tax treatment, claim time limits, and the mistakes to avoid. If you’re new to the term, start with our guide on what is back pay. What Does Back Pay Mean on a Payslip? Back pay — sometimes called “arrears of pay” — is the difference between what an employee was paid and what they were entitled to receive for work already done. On a payslip, it usually appears as a separate line under “Earnings”, labelled “Back Pay” or “Arrears”, showing the gross amount before deductions. It’s kept apart from the current period’s pay so the record stays clear for both the employee and any future audit. Why Does Back Pay Arise? Common Causes Delayed or backdated pay rises — the increase was agreed but only applied months later. Payroll errors — a wrong rate, missed hours, or a dropped pay run. Unpaid overtime — extra hours worked but never recorded or paid. National Minimum Wage underpayments — the rate in the payroll system wasn’t updated. From 1 April 2026, the National Living Wage is £12.71 an hour for workers aged 21 and over (see the current National Minimum Wage rates on GOV.UK). Missed holiday pay — statutory or contractual holiday pay not paid, or not recalculated after a pay rise. Equal-pay or tribunal outcomes — compensation ordered after an employment dispute. How to Calculate Back Pay: Step by Step Step 1 — Identify the back-pay period Pin down the exact start and end dates the underpayment covers. If a pay rise took effect on 1 July but was only applied in October, the period is 1 July to 30 September. Step 2 — Find the difference in pay rate For hourly staff: correct hourly rate − rate actually paid. For salaried staff: (new annual salary − old annual salary) ÷ pay periods per year (12 for monthly pay, 52 for weekly pay). Step 3 — Multiply by the time owed Hourly: rate difference × hours worked in the period. Salaried: monthly or weekly difference × the number of months or weeks owed. Step 4 — Add affected extras Include overtime at the correct overtime rate (not the standard rate), bonuses or commission earned in the period, and holiday pay recalculated at the higher rate. Check whether pension contributions need adjusting too, since they’re based on qualifying earnings. Step 5 — Apply tax and National Insurance Back pay is processed through PAYE like normal earnings — it is not tax-free. See the tax section below for the exact treatment. Step 6 — Report it correctly The adjustment is paid in the next payroll run and reported to HMRC through the Full Payment Submission, allocated to the correct earnings period. Worked Example: Salaried Employee An employee’s annual salary increases from £25,000 to £30,000, backdated for 3 months: Old monthly pay: £25,000 ÷ 12 = £2,083.33 New monthly pay: £30,000 ÷ 12 = £2,500.00 Monthly difference: £2,500.00 − £2,083.33 = £416.67 Back pay owed: £416.67 × 3 months = £1,250 Worked Example: Hourly Employee (Minimum Wage) A 24-year-old employee worked 100 hours in April 2026 but was paid the 2025/26 National Living Wage of £12.21 instead of the current £12.71: Rate difference: £12.71 − £12.21 = £0.50 per hour Back pay owed: £0.50 × 100 hours = £50 Important: minimum-wage arrears are calculated at the rate that applied when the work was done, not today’s rate — so always check the rate in force for the period concerned. When Can Employees Claim Back Pay? UK employment law sets strict time limits (per current ACAS guidance): Single underpayment: 3 months minus one day from the date the wages should have been paid to bring a claim to an Employment Tribunal. A series of linked underpayments (the same error, with less than 3 months between deductions): 3 months minus one day from the most recent deduction — and you can claim up to 2 years back. National Minimum Wage underpayments: you can complain to HMRC instead of going to a tribunal — HMRC can issue a notice of underpayment going back up to 6 years. Note you must choose one route; you can’t run the same issue through both processes. Employees who have already left can still claim, within the same time limits. See the ACAS guidance on claiming unpaid wages for the full details. Do Employers Have to Pay Back Pay? Yes. If an employee hasn’t been paid what they’re contractually or legally entitled to, the employer must make up the difference — failing to do so can be a breach of contract, and unauthorised deductions from wages are unlawful under the Employment Rights Act 1996. In practice: calculate the arrears, explain the error to the employee in writing, and pay the difference in the next payroll cycle. How Is Back Pay Taxed in the UK? Income Tax: for arrears of pay, tax generally relates to the tax year in which the employee was originally entitled to the earnings. For a backdated pay rise, it’s usually taxable when the employee becomes entitled to the additional amount. National Insurance: NICs are normally calculated on the pay period in which the arrears are actually paid. Tax-band effect: a large lump sum can push a single pay period into a higher tax band — this usually evens out over the tax year. A significant payment that crosses tax years may affect a Self Assessment tax return. How to Recover Back Pay Gather evidence — payslips, your employment contract, timesheets or rotas, and any written pay-rise offer. Raise it in writing