CHAPTER 1
Note: Working space and special forms are provided for the Practical Problems and the
Continuing Payroll Problem only. If students are required to prepare written answers to
the Questions for Review, Questions for Discussion, and Case Problems, blank paper
should be provided.
Learning Objectives
After studying this chapter, students should be able to:
1. Identify the various laws that affect employers in their payroll operations.
2. Examine the recordkeeping requirements of these laws.
3. Describe the employment procedures generally followed in a Human Resources
Department.
4. Identify the various personnel records used by businesses and the type of
information shown on each form.
5. Identify the payroll register and the employee’s earnings record.
Contents
Chapter 1 outline:
LEARNING OBJECTIVES
THE PAYROLL PROFESSION
FAIR LABOR STANDARDS ACT
FEDERAL INSURANCE CONTRIBUTIONS ACT
INCOME TAX WITHHOLDING LAWS
UNEMPLOYMENT TAX ACTS
RECORDKEEPING REQUIREMENTS
FAIR EMPLOYMENT LAWS
Civil Rights Act of 1964
Executive Orders
Age Discrimination in Employment Act
Americans with Disabilities Act
OTHER FEDERAL LAWS AFFECTING THE NEED FOR PAYROLL AND PERSONNEL
RECORDS
Federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996
Immigration Reform and Control Act of 1986
E-Verify
Family and Medical Leave Act of 1993
1–1
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1–2 Payroll Accounting
Uniformed Services Employment and Reemployment Rights Act of 1994
Employee Retirement Income Security Act of 1974
Disclosure Requirements
Affordable Care Act of 2010 (ACA)
Applicable Large Employers (ALEs)
Small Employers
OTHER STATE LAWS AFFECTING THE NEED FOR PAYROLL AND PERSONNEL
RECORDS
Workers’ Compensation Laws
Disability Benefit Laws
HUMAN RESOURCES AND PAYROLL ACCOUNTING SYSTEMS
HUMAN RESOURCES SYSTEM
Job Descriptions
Requisition for Personnel
Application for Employment
Reference Inquiry
Hiring Notice
Employee History Record
Change in Payroll Rate
Terminating an Employee
RECORDKEEPING SYSTEM
Employee Access—Personnel Files
PAYROLL ACCOUNTING SYSTEM
Payroll Register
Employee’s Earnings Record
Paycheck
Outsourcing Payroll
KEY TERMS
KEY POINTS SUMMARY
Matching Quiz (p. 1-27)
1. B 6. I
2. D 7. J
3. F 8. C
4. A 9. E
5. H 10. G
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 1 1–3
Questions for Review (p. 1-27)
1. The Fair Labor Standards Act sets the minimum wage rate, and the current mini-
mum wage rate is $7.25 an hour.
2. To meet the requirements of the FLSA, the employer must keep records providing
the following information with respect to each employee’s wages earned:
a. Day and time of day when workweek begins
b. Regular hourly rate of pay
c. Basis of wage payments
d. Hours worked each day
e. Hours worked each week
f. Daily or weekly straight-time pay
g. Amount and nature of exempt pay
h. Weekly overtime pay
i. Total additions to or deductions from wages
j. Total remuneration for payroll period
k. Date of payment
l. Payroll period
3. FICA levies taxes on employers and employees to finance the Federal Old-Age and
Survivors’ Trust Fund, the Federal Disability Insurance Trust Fund, and the Health
Insurance Plan—Medicare. SECA also imposes taxes on the net earnings of the
self-employed individual.
4. The taxes paid to the federal government (FUTA tax) are used to pay the state and
federal administrative expenses incurred in operating the overall unemployment in-
surance program. The taxes paid to the various state governments (SUTA tax) are
used to pay the unemployment compensation benefits to the qualified unemployed
workers.
5. The unfair employment practices prohibited by the Civil Rights Act of 1964, as
amended, include:
a. Discriminating in hiring, firing, promoting, compensating, or in any other condition
of employment on the basis of race, color, religion, sex, or national origin.
b. Unions may not include or segregate union members on these bases.
c. Employment agencies may not refer or refuse to refer applicants for employment
on the basis of race, color, religion, sex, or national origin.
6. The purpose of the Age Discrimination in Employment Act (ADEA) is to prohibit
discrimination on the basis of age in the employment practices of employers,
employment agencies, and labor unions that are engaged in an industry affecting
interstate commerce.
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 1–4 Payroll Accounting
7. A key exception is executives who are 65 or older and who have held high
policy-making positions during the two-year period prior to retirement. If such an
employee is entitled to an annual retirement benefit from the employer of at least
$44,000, the employee can be forcibly retired.
8. The Walsh-Healey Public Contracts Act covers laborers for contractors who furnish
materials, supplies, articles, and equipment to any agency of the United States,
provided the minimum contract amount is $15,000.
9. The employer is required to offer the employee as many as 12 weeks of unpaid
leave. The leave may be used all at once, or in separate weeks, days, or hours.
10. ERISA was designed primarily to ensure that workers covered by private pension
plans receive benefits from those plans in accordance with their credited years of
service with their employers.
11. Vesting conveys to employees the right to share in a retirement fund in the event they
are terminated before the normal retirement age. The vesting process is linked to the
number of years needed for workers to earn equity in their retirement plans and to
become entitled to full or partial benefits at some future date if they leave the
company before retirement. Once vested, a worker has the right to receive a pension
at retirement age, based on years of covered service, even though the worker may
not be working for the firm at that time.
12. The administrator must furnish a statement, not more than once in a 12-month
period, of the total benefits accrued and accrued benefits that are vested, if any, or
the earliest date on which these accrued benefits will become vested.
13. Employers with 50 or more full-time employees during the previous year (applicable
large employers) are required to provide insurance coverage for all full-time em-
ployees and their dependents.
14. The procedure that may be followed by the Human Resources Department in hiring
new employees is:
a. Receive request for new employee.
b. Examine applications.
c. Interview applicants.
d. Administer tests.
e. Check references.
f. Select and notify successful applicant.
g. Send information to Payroll Department.
h. Prepare personnel file.
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Note: Working space and special forms are provided for the Practical Problems and the
Continuing Payroll Problem only. If students are required to prepare written answers to
the Questions for Review, Questions for Discussion, and Case Problems, blank paper
should be provided.
Learning Objectives
After studying this chapter, students should be able to:
1. Identify the various laws that affect employers in their payroll operations.
2. Examine the recordkeeping requirements of these laws.
3. Describe the employment procedures generally followed in a Human Resources
Department.
4. Identify the various personnel records used by businesses and the type of
information shown on each form.
5. Identify the payroll register and the employee’s earnings record.
Contents
Chapter 1 outline:
LEARNING OBJECTIVES
THE PAYROLL PROFESSION
FAIR LABOR STANDARDS ACT
FEDERAL INSURANCE CONTRIBUTIONS ACT
INCOME TAX WITHHOLDING LAWS
UNEMPLOYMENT TAX ACTS
RECORDKEEPING REQUIREMENTS
FAIR EMPLOYMENT LAWS
Civil Rights Act of 1964
Executive Orders
Age Discrimination in Employment Act
Americans with Disabilities Act
OTHER FEDERAL LAWS AFFECTING THE NEED FOR PAYROLL AND PERSONNEL
RECORDS
Federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996
Immigration Reform and Control Act of 1986
E-Verify
Family and Medical Leave Act of 1993
1–1
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1–2 Payroll Accounting
Uniformed Services Employment and Reemployment Rights Act of 1994
Employee Retirement Income Security Act of 1974
Disclosure Requirements
Affordable Care Act of 2010 (ACA)
Applicable Large Employers (ALEs)
Small Employers
OTHER STATE LAWS AFFECTING THE NEED FOR PAYROLL AND PERSONNEL
RECORDS
Workers’ Compensation Laws
Disability Benefit Laws
HUMAN RESOURCES AND PAYROLL ACCOUNTING SYSTEMS
HUMAN RESOURCES SYSTEM
Job Descriptions
Requisition for Personnel
Application for Employment
Reference Inquiry
Hiring Notice
Employee History Record
Change in Payroll Rate
Terminating an Employee
RECORDKEEPING SYSTEM
Employee Access—Personnel Files
PAYROLL ACCOUNTING SYSTEM
Payroll Register
Employee’s Earnings Record
Paycheck
Outsourcing Payroll
KEY TERMS
KEY POINTS SUMMARY
Matching Quiz (p. 1-27)
1. B 6. I
2. D 7. J
3. F 8. C
4. A 9. E
5. H 10. G
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,Chapter 1 1–3
Questions for Review (p. 1-27)
1. The Fair Labor Standards Act sets the minimum wage rate, and the current mini-
mum wage rate is $7.25 an hour.
2. To meet the requirements of the FLSA, the employer must keep records providing
the following information with respect to each employee’s wages earned:
a. Day and time of day when workweek begins
b. Regular hourly rate of pay
c. Basis of wage payments
d. Hours worked each day
e. Hours worked each week
f. Daily or weekly straight-time pay
g. Amount and nature of exempt pay
h. Weekly overtime pay
i. Total additions to or deductions from wages
j. Total remuneration for payroll period
k. Date of payment
l. Payroll period
3. FICA levies taxes on employers and employees to finance the Federal Old-Age and
Survivors’ Trust Fund, the Federal Disability Insurance Trust Fund, and the Health
Insurance Plan—Medicare. SECA also imposes taxes on the net earnings of the
self-employed individual.
4. The taxes paid to the federal government (FUTA tax) are used to pay the state and
federal administrative expenses incurred in operating the overall unemployment in-
surance program. The taxes paid to the various state governments (SUTA tax) are
used to pay the unemployment compensation benefits to the qualified unemployed
workers.
5. The unfair employment practices prohibited by the Civil Rights Act of 1964, as
amended, include:
a. Discriminating in hiring, firing, promoting, compensating, or in any other condition
of employment on the basis of race, color, religion, sex, or national origin.
b. Unions may not include or segregate union members on these bases.
c. Employment agencies may not refer or refuse to refer applicants for employment
on the basis of race, color, religion, sex, or national origin.
6. The purpose of the Age Discrimination in Employment Act (ADEA) is to prohibit
discrimination on the basis of age in the employment practices of employers,
employment agencies, and labor unions that are engaged in an industry affecting
interstate commerce.
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 1–4 Payroll Accounting
7. A key exception is executives who are 65 or older and who have held high
policy-making positions during the two-year period prior to retirement. If such an
employee is entitled to an annual retirement benefit from the employer of at least
$44,000, the employee can be forcibly retired.
8. The Walsh-Healey Public Contracts Act covers laborers for contractors who furnish
materials, supplies, articles, and equipment to any agency of the United States,
provided the minimum contract amount is $15,000.
9. The employer is required to offer the employee as many as 12 weeks of unpaid
leave. The leave may be used all at once, or in separate weeks, days, or hours.
10. ERISA was designed primarily to ensure that workers covered by private pension
plans receive benefits from those plans in accordance with their credited years of
service with their employers.
11. Vesting conveys to employees the right to share in a retirement fund in the event they
are terminated before the normal retirement age. The vesting process is linked to the
number of years needed for workers to earn equity in their retirement plans and to
become entitled to full or partial benefits at some future date if they leave the
company before retirement. Once vested, a worker has the right to receive a pension
at retirement age, based on years of covered service, even though the worker may
not be working for the firm at that time.
12. The administrator must furnish a statement, not more than once in a 12-month
period, of the total benefits accrued and accrued benefits that are vested, if any, or
the earliest date on which these accrued benefits will become vested.
13. Employers with 50 or more full-time employees during the previous year (applicable
large employers) are required to provide insurance coverage for all full-time em-
ployees and their dependents.
14. The procedure that may be followed by the Human Resources Department in hiring
new employees is:
a. Receive request for new employee.
b. Examine applications.
c. Interview applicants.
d. Administer tests.
e. Check references.
f. Select and notify successful applicant.
g. Send information to Payroll Department.
h. Prepare personnel file.
© 2025 Cengage®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
