Fundamental Payroll Certification (FPC) Practice Exam

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What is retroactive pay?

  1. Advance payment for future services rendered

  2. Pay for time worked in a previous workweek

  3. A bonus offered for work completed ahead of schedule

  4. A raise granted after a performance review

The correct answer is: Pay for time worked in a previous workweek

Retroactive pay refers to compensation that is paid for work that has been performed in the past, often as a result of correcting a previous underpayment. In this context, the term specifically applies to pay that is due for time worked in a previous workweek but was not paid at the time it was supposed to be. This can occur for various reasons, such as payroll errors, changes in pay rates that are applied retroactively, or adjustments related to employee classifications. Understanding the implications of retroactive pay is essential in payroll management and compliance. Employers must track these payments accurately to ensure employees receive what they are entitled to, conforming to labor laws and employment agreements. The application of retroactive pay can also impact tax withholdings and employee benefits, which are crucial areas for payroll practitioners to manage diligently.

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