Fundamental Payroll Certification (FPC) Practice Exam

The purpose of a gross-up in payroll is primarily related to determining the total taxable gross when taxes are paid by the employer. A gross-up is a method used to increase the gross pay of an employee to ensure they receive a specific net amount after taxes have been deducted. This technique is often utilized when an employer wants to cover an employee's tax liability as part of a bonus or relocation package, for example.

In this scenario, the employer calculates the necessary gross amount that should be paid to the employee so that after withholding applicable taxes, the employee is left with the intended net income. Thus, option B accurately captures the function of grossing up wages to account for employer-paid taxes, ensuring that employees do not incur an additional financial burden from these expenditures. This practice is essential in managing payroll effectively, especially in compensation arrangements that involve contributions from the employer regarding tax responsibilities.