ASA Compensation, Benefits & Payroll Management 2 — Questions and Answers
Question 1: When calculating a temporary worker's fully loaded cost, which of the following is NOT typically included in the burden rate?
- Workers' compensation insurance
- Employer FICA taxes
- The worker's personal health insurance copays (Correct answer)
- State unemployment insurance (SUI)
Correct answer: The worker's personal health insurance copays
Employee copays are a personal expense, not an employer cost; the burden rate includes employer-paid items like FICA, SUI, workers' comp, and benefits.
Question 2: Under ERISA, what is the primary obligation of staffing firms that sponsor employee benefit plans?
- Maximize investment returns for workers
- Act as fiduciaries and manage plan assets in participants' best interests (Correct answer)
- Ensure clients match agency benefit contributions
- Provide benefits only to full-time direct hires
Correct answer: Act as fiduciaries and manage plan assets in participants' best interests
ERISA imposes fiduciary duties on plan sponsors, requiring them to act prudently and exclusively in the interest of plan participants and beneficiaries.
Question 3: A staffing agency's workers' compensation experience modification rate (EMR) directly affects which cost component?
- FUTA tax rate
- Workers' compensation insurance premium (Correct answer)
- State unemployment tax rate
- FICA contribution base
Correct answer: Workers' compensation insurance premium
The EMR is a multiplier applied to the base workers' compensation premium — a lower EMR means lower premiums, reflecting better safety records.
Question 4: Which classification error creates the greatest payroll tax and benefits liability risk for a staffing agency?
- Misclassifying a full-time employee as part-time
- Misclassifying an employee as an independent contractor (Correct answer)
- Misclassifying an exempt employee as non-exempt
- Misclassifying a temporary worker as a seasonal worker
Correct answer: Misclassifying an employee as an independent contractor
Misclassifying employees as independent contractors causes the agency to avoid payroll taxes and benefits obligations, creating significant back-tax, penalty, and audit liability.
Question 5: What is the primary purpose of the IRS 'ABC test' alternative used in some states to determine worker classification?
- To determine if a worker qualifies for overtime pay
- To establish whether a worker is an employee or an independent contractor (Correct answer)
- To calculate the correct withholding amount for a worker
- To verify the accuracy of payroll tax filings
Correct answer: To establish whether a worker is an employee or an independent contractor
The ABC test (used in states like California under AB5) determines whether a worker is an employee or independent contractor based on control, business integration, and independent trade criteria.
Question 6: In the staffing industry, what does 'pay-rolling' refer to?
- Adding a markup to worker wages before billing the client
- Processing payroll in-house rather than outsourcing it
- Placing a client-recruited worker on the agency's payroll to handle employer obligations (Correct answer)
- Adjusting wages retroactively after a client audit
Correct answer: Placing a client-recruited worker on the agency's payroll to handle employer obligations
Pay-rolling (or payrolling) occurs when a client finds their own candidate but uses the staffing agency to process payroll, benefits, and employer compliance.
Question 7: Which IRS form is used to document that a temporary worker has provided their Social Security Number and verified their tax withholding elections?
- Form I-9
- Form W-4 (Correct answer)
- Form 1099-K
- Form SS-4
Correct answer: Form W-4
Form W-4 is the Employee's Withholding Certificate, used to capture the worker's SSN and federal income tax withholding allowances for payroll purposes.
ASA Compensation, Benefits & Payroll Management 2
When calculating a temporary worker's fully loaded cost, which of the following is NOT typically included in the burden rate?