diff --git a/server/backup.go b/server/backup.go
index 1568290d..177ad037 100644
--- a/server/backup.go
+++ b/server/backup.go
@@ -95,7 +95,7 @@ func (s *Server) Backup(b backup.BackupInterface) error {
 		_ = b.Remove()
 
 		s.Log().WithField("error", notifyError).Info("failed to notify panel of successful backup state")
-		return err
+		return notifyError
 	} else {
 		s.Log().WithField("backup", b.Identifier()).Info("notified panel of successful backup state")
 	}
diff --git a/server/backup_test.go b/server/backup_test.go
new file mode 100644
index 00000000..33edc4b6
--- /dev/null
+++ b/server/backup_test.go
@@ -0,0 +1,146 @@
+package server
+
+import (
+	"context"
+	"errors"
+	"io"
+	"path/filepath"
+	"testing"
+
+	"github.com/pterodactyl/wings/config"
+	"github.com/pterodactyl/wings/internal/models"
+	"github.com/pterodactyl/wings/remote"
+	serverbackup "github.com/pterodactyl/wings/server/backup"
+	serverfs "github.com/pterodactyl/wings/server/filesystem"
+)
+
+type backupTestRemoteClient struct {
+	setBackupStatusErr error
+}
+
+func (c backupTestRemoteClient) GetBackupRemoteUploadURLs(context.Context, string, int64) (remote.BackupRemoteUploadResponse, error) {
+	return remote.BackupRemoteUploadResponse{}, nil
+}
+
+func (c backupTestRemoteClient) GetInstallationScript(context.Context, string) (remote.InstallationScript, error) {
+	return remote.InstallationScript{}, nil
+}
+
+func (c backupTestRemoteClient) GetServerConfiguration(context.Context, string) (remote.ServerConfigurationResponse, error) {
+	return remote.ServerConfigurationResponse{}, nil
+}
+
+func (c backupTestRemoteClient) GetServers(context.Context, int) ([]remote.RawServerData, error) {
+	return nil, nil
+}
+
+func (c backupTestRemoteClient) ResetServersState(context.Context) error {
+	return nil
+}
+
+func (c backupTestRemoteClient) SetArchiveStatus(context.Context, string, bool) error {
+	return nil
+}
+
+func (c backupTestRemoteClient) SetBackupStatus(context.Context, string, remote.BackupRequest) error {
+	return c.setBackupStatusErr
+}
+
+func (c backupTestRemoteClient) SendRestorationStatus(context.Context, string, bool) error {
+	return nil
+}
+
+func (c backupTestRemoteClient) SetInstallationStatus(context.Context, string, remote.InstallStatusRequest) error {
+	return nil
+}
+
+func (c backupTestRemoteClient) SetTransferStatus(context.Context, string, bool) error {
+	return nil
+}
+
+func (c backupTestRemoteClient) ValidateSftpCredentials(context.Context, remote.SftpAuthRequest) (remote.SftpAuthResponse, error) {
+	return remote.SftpAuthResponse{}, nil
+}
+
+func (c backupTestRemoteClient) SendActivityLogs(context.Context, []models.Activity) error {
+	return nil
+}
+
+type successfulBackup struct {
+	removed bool
+}
+
+func (b *successfulBackup) SetClient(remote.Client) {}
+
+func (b *successfulBackup) Identifier() string {
+	return "backup-id"
+}
+
+func (b *successfulBackup) WithLogContext(map[string]interface{}) {}
+
+func (b *successfulBackup) Generate(context.Context, *serverfs.Filesystem, string) (*serverbackup.ArchiveDetails, error) {
+	return &serverbackup.ArchiveDetails{
+		Checksum:     "checksum",
+		ChecksumType: "sha1",
+		Size:         1024,
+	}, nil
+}
+
+func (b *successfulBackup) Ignored() string {
+	return "ignored"
+}
+
+func (b *successfulBackup) Checksum() ([]byte, error) {
+	return nil, nil
+}
+
+func (b *successfulBackup) Size() (int64, error) {
+	return 0, nil
+}
+
+func (b *successfulBackup) Path() string {
+	return ""
+}
+
+func (b *successfulBackup) Details(context.Context, []remote.BackupPart) (*serverbackup.ArchiveDetails, error) {
+	return nil, nil
+}
+
+func (b *successfulBackup) Remove() error {
+	b.removed = true
+	return nil
+}
+
+func (b *successfulBackup) Restore(context.Context, io.Reader, serverbackup.RestoreCallback) error {
+	return nil
+}
+
+func TestServerBackupReturnsNotifyErrorAfterSuccessfulGeneration(t *testing.T) {
+	config.Set(&config.Configuration{
+		AuthenticationToken: "test-token",
+		System: config.SystemConfiguration{
+			DiskCheckInterval: 150,
+		},
+	})
+
+	notifyErr := errors.New("panel unavailable")
+	srv, err := New(backupTestRemoteClient{setBackupStatusErr: notifyErr})
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	fsys, err := serverfs.New(filepath.Join(t.TempDir(), "server"), 0, nil)
+	if err != nil {
+		t.Fatal(err)
+	}
+	srv.fs = fsys
+
+	backup := &successfulBackup{}
+	if err := srv.Backup(backup); !errors.Is(err, notifyErr) {
+		t.Fatalf("expected notify error, got %v", err)
+	}
+
+	if !backup.removed {
+		t.Fatal("expected backup archive to be removed after notify failure")
+	}
+}