FPC-Remote Practice Exam Questions with Answers Fundamental Payroll Certification

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

References:

NACHA Direct Deposit Standards

Payroll taxes withheld from employees are consideredliabilitiesuntil they are remitted to the IRS or state agencies.

Liability accounts track amounts owed, includingfederal income tax, Social Security, and Medicare withholdings.

Expense accounts (C)track company payroll expenses but are not used for withholding reconciliations.

References:

IRS Payroll Accounting Guidelines

Payroll Tax Reconciliation Guide (Payroll.org)

Proper documentationensures uniformityin payroll and HR operations bystandardizing processes.

Conformity (C)refers to compliance but does not guarantee process standardization.

Responsibility (A) and adaptability (B)are important but not the primary reason for documentation.

References:

Payroll Process Standardization Guide (Payroll.org)

Unauthorized access (B) is a direct result of security breaches.

Other options (A, C, D) may result from human error but not security violations.

References:

Payroll Security Guidelines (Payroll.org)

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

It mandates employer-provided health insurance and individual coverage.

References:

Affordable Care Act (IRS)

TheInternal Revenue Service (IRS)is responsible for issuing updates related toForms W-2 and W-3under federal tax laws.

SSA (Social Security Administration)processes W-2s but does not initiate changes.

OCSS (Office of Child Support Services)andUSCIS (U.S. Citizenship and Immigration Services)are not involved in payroll tax forms.

References:

IRS Publication 15 (Employer’s Tax Guide)

IRS Form W-2 & W-3 Guidelines

Health Insurance (Biweekly) = ($1,500 ÷ 26) = $57.69

Life Insurance (Biweekly) = ($15 × 12 ÷ 26) = $6.92

Dental Insurance = $5.00

Total Biweekly Deduction = $57.69 + $6.92 + $5.00 = $69.61

References:

IRS Section 125 Cafeteria Plan Rules

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)

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)

Form 941 is used to report quarterly employment taxes(including federal income tax, Social Security, and Medicare).

Form 940 reports FUTA taxes (A), not quarterly employment taxes.

Form 944 is for small employerswho file annually instead of quarterly.

Form 945 is for non-wage income withholding (D).

References:

IRS Form 941 Instructions

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

Payroll account reconciliation ensures all financial data is accurate and balanced.

Payroll register reconciliation (D) is a separate processused for payroll audits, not monthly account reconciliation.

References:

Payroll Reconciliation Procedures (Payroll.org)

IRS Payroll Recordkeeping Guidelines

A journal is known as the "original entry" because transactions are first recorded here before posting to the ledger.

The general ledger is the final entry (B), not the journal.

References:

Payroll Accounting Standards (Payroll.org)

USCIS audits (C) are related to immigration compliance, not overtime violations.

DOL investigations (D) and back pay requirements (A) are common FLSA enforcement actions.

Settlement pay (B) may be required in legal resolutions of wage disputes.

References:

FLSA Overtime Enforcement Guidelines (DOL)

Payroll Compliance Guide (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)

Total Taxable Wages:

$5,000 + $10,000 + $7,500 + $1,000 + $15,000 = $38,500

Social Security Tax (6.2%)

$38,500 × 6.2% = $2,387.00

Medicare Tax (1.45%)

$38,500 × 1.45% = $558.25

Total FICA Tax (Employer’s share)

$2,387.00 + $558.25 = $2,945.25

References:

IRS Publication 15 (Employer’s Tax Guide)

FLSA governs wages and hours, not privacy rights.

Privacy laws are governed by federal/state regulations and company policies.

References:

Employee Privacy Rights (DOL)

Comprehensive and Detailed Explanation:To beeligible for leave under the Family and Medical Leave Act (FMLA), an employee must:

Work for a covered employer (50+ employees) (Option A)

Have worked at least 1,250 hours in the past 12 months (Option C)

Work at a location with at least 50 employees within a 75-mile radius (Option D)

Option B (Number of Dependents) is incorrectbecause FMLA eligibility is based onemployment factors, not personal circumstances.

Comprehensive and Detailed Explanation:A457(b) planis anonqualified deferred compensation planoffered primarily togovernment and tax-exempt employees.

Option A (401(k))andOption B (403(b))arequalified retirement plansunderERISA.

Option C (408(p))refers to aSIMPLE IRA, which is also aqualified plan.

Comprehensive and Detailed Explanation:PayrollStandard Operating Procedures (SOPs)must beregularly updatedto maintain compliance and accuracy.

Best practice is to update SOPs whenever workflows change(Option C).

Option A (Annually)is incorrect becausewaiting a full yearcould lead to outdated procedures.

Option B (Quarterly)is incorrect unless payroll processes are highly dynamic.

Option D (When management changes)is incorrect becauseprocesses may change independently of leadership changes.

Comprehensive and Detailed Explanation:Reliabilityrefers to a company’sability to provide accurate and timely service. In payroll,failing to create an ACH file results in missed payments, affecting employees andviolating reliability standards.

Option A (Empathy)is incorrect because it relates tounderstanding and addressing employee concerns, not payroll processing.

Option C (Responsiveness)is incorrect because itdeals with reaction speedrather than payroll execution.

Option D (Tangibles)is incorrect because it refers tophysical aspects of service (documents, appearance, etc.).

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:

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:Under IRS regulations,employees must report tips totaling $20 or more per month to their employer by the 10th day of the following month.

Employee received $200.10 in tips in July.

Tip income must be reported by August 10.

Option B (September 10), Option C (September 30), and Option D (December 31) are incorrectbecause the IRS mandatesmonthly reporting.

Comprehensive and Detailed Explanation:

Gross Pay Calculation:

Hourly Rate × Hours Worked = $10.00 × 40 = $400.00

Taxable Wages:

Gross Pay: $400.00

Pre-Tax Deductions: $50 (Medical) + $10 (Dental) + $25 (401k) = $85.00

Taxable Wages = $400 - $85 = $315.00

Federal Income Tax Withholding (Wage Bracket Method):

Based on IRS tables for single filers, FIT = approx. $20.00

Social Security & Medicare Taxes:

Social Security (6.2%) = $400 × 6.2% = $24.80

Medicare (1.45%) = $400 × 1.45% = $5.80

Total Deductions:

$20.00 (FIT) + $24.80 (SS) + $5.80 (Medicare) + $25.00 (Union Dues) = $75.60

Net Pay:

$400 - $75.60 = $259.99

Thus, the correct answer isD. $259.99.

Comprehensive and Detailed Explanation:Constructive receiptmeans an employee isconsidered paidwhen wages aremade available without restriction, even if they do not physically receive the money.

Option A (On the paycheck date)is incorrect because the date of the paycheck does not determinewhen wages are constructively received.

Option B (When cashed)is incorrect because an employee isconsidered paid before they cash the check.

Option C (When ACH file is created)is incorrect because the wages are not yet available to the employee.

Option D is correct because once wages are accessible (direct deposit or paycheck available for pickup), the IRS considers them "received" for tax purposes.

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:Good payroll customer service policies should be:

Reliable (Option A)– Consistent and dependable for employees.

Accurate– Ensuring payroll is error-free.

Responsive– Quick resolution of inquiries.

Option B (Fluctuating) is incorrectbecauseinconsistent policies confuse employees.

Option C (Interchangeable) is incorrectbecausepolicies must be specific to payroll needs.

Option D (Intangible) is incorrectbecausecustomer service policies should be well-defined and enforceable.

Comprehensive and Detailed Explanation:State Unemployment Tax Act (SUTA) liabilityis determined based onwhere an employee works and receives direction from, not necessarily where a company is incorporated.

Thekey factors for determining SUTA stateinclude:

Base of Operations (Option A)– Where the employee works.

Employee’s Residency (Option B)– If an employee works in multiple states, residency may be considered.

Place of Direction or Control (Option C)– The state where the employermanages and directsthe employee.

Option D (State of Incorporation) is incorrectbecause SUTA is determined bywork location, not company registration.

Comprehensive and Detailed Explanation:Employers must reportunclaimed wagesto the state according toescheatment laws. Required information includes:

Last Known Address (A)– To help locate the employee.

Full Name (B)– To identify the rightful owner.

Payment Amount & Date (D)– To track the missing wages.

Option C (Date of Birth) is NOT requiredin most state reporting systems, as name and address are sufficient for identification.

Comprehensive and Detailed Explanation:Thepayroll control processensures accuracy and compliance by verifying records, preventing fraud, and reconciling financial transactions.

Batch Totals (Option A)– Used to verifytransaction accuracy.

System Edits (Option B)– Automated controls toprevent errors.

Balancing & Reconciliation (Option D)– Ensures payrollmatches financial records.

Option C (Unauthorized Overtime) is incorrectbecauseovertime management is an operational issue, not a control process.

Comprehensive and Detailed Explanation:UnderForm I-9 retention rules, an employermust retain the form for the later of:

Three years from the date of hire, or

One year from the termination date.

Employee hired on July 1, 2021?Three years from hire date= July 1, 2024

Employee terminated on September 30, 2022?One year from termination= September 30, 2023

Since thelatest date is September 30, 2024, that is theearliest date the employer may dispose of the Form I-9.

Comprehensive and Detailed Explanation:Under theFair Labor Standards Act (FLSA), "white-collar exemptions" apply tocertain salaried employees who meet specific duties and salary tests. The three main categories are:

Executive (Option A)– Managers with supervisory responsibilities.

Administrative (Option B)– Employees in non-manual work related to business operations.

Outside Sales (Option C)– Sales employees working away from the employer’s place of business.

Option D (Computer Hardware Operators) is incorrectbecause this roledoes not qualifyfor exemption under the FLSA white-collar rules. Onlycertain IT professionals (software engineers, systems analysts, etc.)qualify under theComputer Employee Exemption.

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: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: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:ThePayroll Department’s key functionsinclude:

Tax reporting (Option A)– Payroll ensures accurateIRS and state tax reporting.

Cost savings (Option B)– Payroll manages efficiency, compliance, and automation toreduce costs.

Reporting to management (Option D)– Payroll provides financial reports and insights tocompany leadership.

However,giving tax advice (Option C) is NOT a function of payroll. Payroll professionalscalculate and withhold taxesbut do notprovide tax planning adviceto employees.