Office of Federal Contract Compliance Programs (OFCCP)

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OFCCP Directive

Transmittal Number: 272
DATE: June 23, 2006
OFCCP ORDER NO.: FCCM Notice/CH 7

1. SUBJECT: Revision of the Worksheets in Appendix7A for Calculating Interest on Back Pay.
2. PURPOSE: To update the table of interest rates on back pay based on the Internal Revenue Service's underpayment formula.
3. BACKGROUND: Appendix A to Chapter7 provides the IRS underpayment rates used to calculate interest on back pay. This Appendix was last revised in October 2005 (reference Transmittal #270) to update those rates. This Notice provides a new update on the IRS underpayment rate.
4. INSTRUCTIONS: From Manual Chapter7, remove and discard Appendix 7A page 7A-1/7A-2 and insert in its place the attached revision of that Appendix (page7A-1/7A-2).

   All changes made in this Notice are indicated by shading.

5. OBSOLETE: Page7A-1/7A-2 ofAppendix7A.
6. ATTACHMENT: Revised page7A-1/7A-2.
7. DISTRIBUTION: A, B (both hard copy and electronically); C(hard copy only).
8. EXPIRATION DATE: This Notice expires when implemented and may be discarded or retained for reference, at your option.

(Signed) CHARLES JAMES

CHARLES E. JAMES, SR
Deputy Assistant Secretary
for Federal Contract Compliance

June 23, 2006
Date

Appendix 7A

APPENDIX 7A: INTEREST RATES ON BACK PAY

OFCCP's policy is that interest on back pay is calculated at the same percentage rate as the Internal Revenue Service's underpayment formula on interest — from the first date that is covered by the back pay award.

Interest rates for back pay calculations based on IRS calculations since 1983 are as follows:

*To at least the date of this revision.

Revised June 23, 2006

Appendix 7A

Periodically the IRS issues press releases giving updated information on updates to interest rates. To access recent press releases on this subject go to www.irs.gov. Go to "Search for…" at the upper left hand corner of the IRS home page and type "interest rates for underpayment" and click on "go." The list of the most recent press releases on changes in IRS interest rates will then be displayed.

In a compound interest calculation, the interest due on back pay (or any other debt) for one time period is included in the money on which interest is figured for the next time period — i.e.,you pay"interest on your interest." In a simple interest calculation, on the other hand, the interest due on back pay (or any other debt) for one time period is not included in the money on which interest is figured for the next time period — i.e., you don't pay “interest on your interest.”

Title 41 CFR 60-1.26(a)(2) requires that interest on back pay be compounded quarterly in Executive Order cases. Similarly, 41 CFR 60-250.65(a)(1) requires that interest on back pay be compounded quarterly in VEVRAA cases. Further, 41 CFR 60-741.65(a)(1) requires that interest on back pay be compounded quarterly in Section 503 cases. Therefore, in determining the amount of back pay due, first determine the amount of back pay due for each quarter. Then use column Q on the previous page to find the interest rate applicable to each quarter. For example, if the back pay period were 12/4/97 through 5/25/98 and $12,000 back pay were due, distribute back pay by quarter as follows:

Quarterly compound interest is applied to the average amount of back pay due during each quarter. This average is the total amount of back pay plus interest due at the beginning of each quarter, plus half the amount of back pay due for the quarter itself, plus the interest accrued during the previous quarter.

The following worksheet displays the result for the above example:

Reissued June 23, 2006