Retroactive pay is pay which an employee is owed for work which has already been completed. It is often made up in the form of a lump sum in which the difference between what the employee was paid and what the employee should have been paid is made over in a check. Sometimes an agreement may be reached in which the employer disburses small payments with each paycheck until the difference has been made up. There are a number of reasons why people might be entitled to retroactive pay.