FPC-Remote Fundamental Payroll Certification Questions and Answers

Workers’ compensation includes commissions (B) as part of employee earnings.

Gratuities (A) and uniform stipends (D) are usually excluded.

References:

State Workers' Compensation Audit Guidelines

Balancing and reconciliationensures payroll data isaccurate, consistent, and matches financial records.

Gap analysis(A) is used to compare actual vs. expected performance.

Evaluating system performance(C) focuses on efficiency, not data verification.

Periodic auditing (D)is important but not the primary method of payroll validation.

References:

Payroll Balancing & Reconciliation Guidelines (Payroll.org)

Form W-9is used for independent contractors (U.S. residents) butdoes NOT determine residency for tax purposes.

TheSubstantial Presence Test (B)andGreen Card Test (C)are used to determine tax residency.

Tax treaties (D) impact tax status for nonresidents.

References:

IRS Publication 519 (U.S. Tax Guide for Aliens)

TheEisenhower Matrixis a time management framework that categorizes tasks by urgency and importance:

Urgent & Important: Must be done immediately (e.g., payroll processing).

Not Urgent but Important: Planning and strategic tasks (e.g., compliance training).

Urgent but Not Important: Tasks that may be delegated (e.g., responding to non-critical emails).

Not Urgent & Not Important:These tasks have the lowest priorityas they do not contribute significantly to productivity (e.g., unnecessary meetings).

References:

Eisenhower Matrix Time Management Framework

Payroll Management Best Practices (Payroll.org)

Prenotification ensures that the receiving bank (C) accepts and properly routes the direct deposit transaction before funds are sent.

References:

NACHA Direct Deposit Standards

Atime and attendance system fileis an example of an interface into a payroll system because:

Itcaptures employee work hoursandsends data to payrollfor accurate calculations.

Payroll interfaces ensureautomated and accurate payment processing.

Other options explained:

Check print file(A) is an output, not an interface.

ACH payment file(B) is used to process payments, not interface data.

General ledger transactions(D) are accounting-related, not payroll input.

References:

Payroll System Integration Guide (Payroll.org)

The employee master file contains essential payroll data, including DOB, SSN, and address.

Marital status is typically recorded on tax withholding forms (e.g., Form W-4) but is not a standard master file entry.

References:

Payroll Data Management Standards (Payroll.org)

Step 1: Calculate disposable earnings

$300.00 - ($45.00 + $18.60 + $4.35) = $232.05

Step 2: Apply CCPA withholding limit

60% of $232.05 = $139.23

References:

Consumer Credit Protection Act (CCPA) - Federal Child Support Withholding Limits

Payroll Withholding Compliance Guide (Payroll.org)

A "B" Notice (Backup Withholding Notice)is sent by theIRS when a payee’s taxpayer ID does not match records.

The employer must notify the payee within30 daysto correct their details.

Failure to comply results inbackup withholding of 24%on future payments.

References:

IRS Publication 1281 (Backup Withholding Notices)

ODFI (Originating Depository Financial Institution)is responsible for initiating payroll transactions, including stop payments.

RDFI (Receiving Depository Financial Institution)receives funds but does not control stop payments.

NACHA (National Automated Clearing House Association)sets ACH rules but does not process transactions.

FDIC (Federal Deposit Insurance Corporation)insures bank deposits but does not handle payment stops.

References:

NACHA Operating Rules & Guidelines

Payroll Banking & ACH Processing Guide (Payroll.org)

Employee badges (B) are NOT acceptable as proof of identity for Form I-9.

Acceptable IDs include passports, driver’s licenses, and other government-issued documents.

References:

USCIS Form I-9 Acceptable Documents List

Under theFair Labor Standards Act (FLSA):

Overtime is requiredonly when an employee works more than 40 hours in a workweek.

Thetotal worked hours (excluding sick leave) = 25 hours(below 40).

No overtime is due.

References:

FLSA Overtime Rules (Department of Labor)

Thefederal minimum wageis$7.25 per hour.

A state's minimum wage is$0.60 higher, so$7.25 + $0.60 = $7.85.

FLSA requires thehigherof state or federal minimum wage.

References:

FLSA Minimum Wage Provisions (Department of Labor)

As a semiweekly depositor, if the tax liability exceeds $100,000 in a single day, the employer must deposit the full amount by the next business day.

The combined liability of $169,200 must be deposited on Monday.

References:

IRS Publication 15 (Federal Deposit Rules)

Step 1: Determine taxable wages

Regular wages:$2,000.00

Shift differential:$1,000.00

Total taxable wages = $3,000.00(Non-taxable tuition reimbursement and travel are excluded.)

Step 2: Calculate Social Security tax

$3,000 × 6.2% = $186.00 (Employer portion)

Step 3: Calculate Medicare tax

$3,000 × 1.45% = $43.50 (Employer portion)

Step 4: Total employer FICA tax

Social Security + Medicare = $186.00 + $43.50 = $229.50

Employer’s share = $229.50 × 2 = $459.00

References:

IRS Publication 15 (Employer’s Tax Guide)

Social Security and Medicare Tax Rates (IRS)

The ACA (Affordable Care Act) was enacted to reform healthcare.

It mandates employer-provided health insurance and individual coverage.

References:

Affordable Care Act (IRS)

Thefinal phase of the accounting process is generating financial statements (D), which summarize all accounting activities.

Transactions (A), journal entries (B), and general ledger (C) occur earlier in the process.

References:

Payroll Accounting Standards (Payroll.org)

Direct deposit errors (A) may result in payroll mismatches and unrecorded transactions, causing the general ledger to be out of balance.

Other options (B, C, D) impact payroll costs but do not directly affect ledger balancing.

References:

Payroll Accounting Reconciliation Standards

Comprehensive and Detailed Explanation:For2024, the401(k) contribution limitis:

$23,000.00 for employees under 50 years old.

$30,500.00 for employees 50 and older(includes$7,500 catch-up contribution).

Since the employee is49 years old, theydo not qualify for the catch-up contribution, so the maximum contribution is$23,000.00.

Comprehensive and Detailed Explanation:Toproperly reconcile payroll tax liability accounts, the following steps are performed:

Compare account entries against payroll registers (C)– Ensures wages, deductions, and taxes are posted correctly.

Verify checks issued by accounts payable (B)– Confirms tax payments were made.

Match account activity with quarterly tax returns (D)– Ensures payroll taxes were reported correctly on Form 941.

Option A (Entries from company accountants) is incorrectbecauseaccountants do not create payroll entries; payroll is recordedbased on actual payroll transactions, not estimates or adjustments from accountants.

Comprehensive and Detailed Explanation:Social Security tax is6.2%forboth the employer and employee, so total liability is12.4%ofSocial Security taxable wages.

Calculate Social Security taxable wages:

Gross pay:$32,500.00

Less pre-tax deductions (Health Insurance & 401k do NOT reduce Social Security taxable wages):

Taxable Wages = $32,500.00 - $1,200.00 = $31,300.00

Calculate Social Security tax (12.4% total for employer & employee):

$31,300 × 12.4% = $3,881.20

Thus, the correct answer isC. $3,881.20.

Comprehensive and Detailed Explanation:Medicare tax is1.45%onwages up to $200,000, and2.35%(including the Additional Medicare Tax) on wagesabove$200,000.

YTD Wages before payment:$169,000.00

New total earnings after bonus:$169,000 + $16,600 = $185,600.00

Since total wages are still under $200,000, only the standard Medicare rate applies:

$16,600 × 1.45% = $240.70

Thus, the correct answer isC. $240.70.

Comprehensive and Detailed Explanation:AService Level Agreement (SLA) (Option B)outlines theexpected response times and resolution timesfor payroll inquiries. This ensures that payroll staff provide timely assistance to employees.

Option A (General Service Contract)applies toexternal service providers, not internal payroll departments.

Option C (Standards of Excellence)refers tobroad performance benchmarks, but it does not include specific response times.

Option D (Time Management)relates topersonal efficiency, not defined service expectations.

Comprehensive and Detailed Explanation:Workers' compensation benefitsare NOT subject to FUTA (Federal Unemployment Tax Act)as long as they are paid under aworkers' compensation law.

Option A (Not included in gross income) is correctbecauseworkers' compensation is tax-exemptunder IRS rules.

Option B (Received for work-related injuries/illnesses) is correctbecause these paymentsreplace lost wagesdue to job-related incidents.

Option D (Not subject to FICA under state laws) is correctbecauseworkers' compensation payments are exempt from Social Security & Medicare taxesif they are made under astate-approved program.

Option C is incorrectbecause workers' compensation paymentsare NOT subject to FUTA, regardless of the amount paid.

Comprehensive and Detailed Explanation:UnderFair Labor Standards Act (FLSA) rounding rules, employers may round employee timeto the nearest 15-minute incrementusing the7-minute rule:

If an employee clocks inbefore the 7-minute mark, rounddown.

If an employee clocks inafter the 7-minute mark, roundup.

Employee's actual times:

Clock in: 8:07 a.m.→ Roundeddown to 8:00 a.m.

Clock out: 4:08 p.m.→ Roundedup to 4:15 p.m.

Thus, the correct answer isD. 8:00 a.m. to 4:15 p.m..

Comprehensive and Detailed Explanation:

Form 945 is used by employers to report federal income tax withheld from non-payroll payments, including backup withholding on:

Payments to independent contractors (when no valid W-9 is provided)

Certain gambling winnings

Dividend and interest payments subject to IRS backup withholding rules

Option A (Form W-9) is incorrect because Form W-9 is used by payees to provide taxpayer identification numbers (TINs), not for reporting withholding.

Option B (Form W-2) is incorrect because Form W-2 is used for employee wages and withholding, not backup withholding.

Option D (Form 941) is incorrect because Form 941 reports payroll tax withholdings, not backup withholding.

Comprehensive and Detailed Explanation:Workflow mappingis avisual representation of payroll processesto ensureefficiency and accuracy.

Option A (Logical thought processes)ensuresclarityand eliminates assumptions.

Option B (Depictions of sequences)accurately describesworkflow design.

Option C (Steps follow without delay)ensuresprocess efficiency.

Option D is incorrectbecause it describesService Level Agreements (SLA), notworkflow mapping.

Comprehensive and Detailed Explanation:Unclaimed wages (also known asescheat wages) must be handled according tostate escheatment laws.Each statehas its own rules about how long employers must hold unclaimed wages before remitting them to thestate’s unclaimed property division.

Option Ais incorrect because voiding the check does not resolve the issue of unclaimed wages, and FormW-2cis used forcorrecting tax information, not handling unclaimed wages.

Option Bis incorrect because unclaimed wagescannotbe posted asforfeited earningswithout proper reporting to the state.

Option Cis incorrect becauseescheatment laws are governed at the state level, not federal.

Comprehensive and Detailed Explanation:Payroll liabilities (taxes, deductions, and withholdings) must be reconciledregularly to prevent errors and ensure compliance.

Best practice is monthly reconciliation (Option B)to ensure:

Payroll taxes matchgeneral ledger accounts.

Deposits are made on time toavoid IRS penalties.

Payroll liability accounts are balanced beforequarterly tax filings.

Option A (Weekly)is impractical unless payroll runs very frequently.

Option C (Quarterly) and Option D (Yearly) are too infrequentand may result in tax errors or compliance issues.

Comprehensive and Detailed Explanation:TheReasonable Basis Testallows an employer to classify a worker as anindependent contractorif:

A previous IRS audit approved similar treatment

A court ruling or IRS ruling supports classification

Industry practices support independent contractor status

Option A (Common Law Test)determines if a worker should be anemployee or independent contractor, butdoes not override misclassification.

Option C (Physical Presence Test)applies toforeign earned income exclusions.

Option D (Permanent Resident Test)applies toimmigration status, not worker classification.

Comprehensive and Detailed Explanation:Ashadow payrollis amechanism used for employees on international assignmentswho remain on thehome country’s payrollbut mustcomply with host country tax withholding.

Thehome country employer processes payroll normally, while thehost country imposes local tax liabilities.

Theshadow payrollensures compliance withboth home and host country tax regulations.

Option A (Certified Payroll)applies togovernment contracts.

Option C (Off-Cycle Payroll)refers toout-of-schedule payments.

Option D (Supplemental Payroll)refers tobonus or commission payrolls.

Comprehensive and Detailed Explanation:Non-operating expensesare costsnot directly relatedto the core operations of a business.

Option A (Insurance) is an operating expensebecause it is necessary to protect business assets.

Option C (Legal fees) is an operating expenseif related to business operations.

Option D (Utilities) is an operating expensebecause they are required to keep business operations running.

Option B (Interest paid on income taxes) is a non-operating expensebecause it isnot part of daily business operationsbut rathera financial or tax-related cost.

Comprehensive and Detailed Explanation:Grossing upmeansincreasing the payment amountso that the employeereceives a specific net amountafter taxes are withheld. Employerspay the taxes on behalf of the employeein such cases.

This is commonly used for:

Relocation reimbursements

Bonus payments

Tax equalization for expatriates

Option Ais incorrect because grossing up is done to cover taxes, not to determine withholdings.

Option Bis incorrect becausegrossed-up amounts are taxable, not tax-exempt.

Option Dis incorrect becausegrossed-up payments are always taxable.

Formula:

Comprehensive and Detailed Explanation:Apre-notification (pre-note) processis used by payroll departments to verifybanking detailsbefore initiatingdirect depositpayments.

Azero-dollar transactionis sent viaACH (Automated Clearing House)to ensureaccount validity.

This stepprevents payment errorsandfraudulent transactions.

Option Ais incorrect becausepre-notes are usually processed 3–6 days before payday, but not necessarilyfivedays in all cases.

Option Bis incorrect becausenot all employers require a pre-note before direct deposit begins.

Option Cis incorrect becauseACH verification does not confirm the employee’s full legal name.

Comprehensive and Detailed Explanation:Apayroll system upgradeaffects documentationrelated to payroll processingbutdoes not change union contracts.

Option A (User manuals):Correct –New system features require updated manuals for payroll staff.

Option C (Business continuity plans):Correct –System changes must be included in disaster recovery plans.

Option D (Standard operating procedures – SOPs):Correct –Payroll procedures need updates for new workflows.

However,union contracts (Option B) remain unchangedunless anew agreement is negotiated.

Comprehensive and Detailed Explanation:Form 8922, Third-Party Sick Pay Recap,is used when athird-party administrator (TPA)payssick payon behalf of an employer and needs toreport taxable wages properly.

This ensures thatSocial Security, Medicare, and FUTA taxesare correctly allocated between theemployer and third party.

Sick pay is subject to FICA taxes, butnot always subject to FUTAif paid directly by an insurer.

Option A (Form 941)is incorrect because it is used forquarterly payroll tax filings.

Option B (Form 1099)is incorrect becausesick pay is reported on W-2, not 1099.

Option D (Form 1095-B)is incorrect because it relates tohealth coverage reporting.

Comprehensive and Detailed Explanation:Independent contractors do NOT receive a salary.They:

Invoice for services renderedrather than receivingfixed wages.

Risk profit or loss(Option B) based on how they manage expenses.

Can hire assistants(Option C) to help complete tasks.

Can end the relationship at any time(Option D) unless bound by a contract.

Option A (Receive a salary) is incorrectbecausesalaries are paid only to employees, not independent contractors.

Comprehensive and Detailed Explanation:According toForm I-9, Employment Eligibility Verification, anunexpired U.S. passportis aList A documentthat establishesbothan employee’sidentity and work authorization.

ASocial Security card(Option A) is aList C document, which only provesemployment authorizationbut not identity.

AVoter’s Registration Card(Option C) isnot an acceptable I-9 documentfor identity or work authorization.

ADriver’s License(Option D) is aList B document, which only provesidentitybut not employment eligibility.

Comprehensive and Detailed Explanation:

When a natural disaster occurs, the first priority of any employer should be to ensure the safety and well-being of employees.

Step 1: Confirm employee safety – Employers should account for all employees and provide immediate assistance if needed.

Step 2: Assess business operations impact – Once employees are safe, the employer can begin securing records and office space.

Option A is incorrect because accessing payroll records is important but secondary to employee safety.

Option C is incorrect because temporary housing is not the employer’s primary responsibility.

Option D is incorrect because securing office space is a later step in disaster recovery.