what is retro pay? Retro pay It operates simply in which we find the duration in which a worker has been underpaid, the difference between the amount earned and actually accepted then it gives out the difference as a lump sum or the next payment. Employers usually reconcile the cause of retro pay which can be that of a missed raise or miscalculation of overtime. Deduction and taxes of course apply as in the case of normal pay. The process will make sure that workers are adequately compensated on past efforts.