Financial Modeling & Forecasting Flashcards

A payroll model uses a 'step cost' approach for overtime. At what point does this model assume overtime costs are triggered?

Answer: When total hours for a non-exempt employee exceed 40 in a workweek

Under FLSA, overtime pay is required when non-exempt employees work more than 40 hours in a single workweek, which is the standard step-cost trigger.

Which financial modeling concept describes the relationship between a percentage change in payroll costs and a percentage change in revenue?

Answer: Labor elasticity

Labor elasticity measures how responsive payroll costs are to changes in revenue, helping forecast workforce needs as business scales.

In a payroll financial model, 'headcount by FTE' differs from 'headcount by employee count' primarily because:

Answer: FTE converts part-time workers to full-time equivalents based on hours worked

FTE standardizes headcount by expressing part-time hours as a fraction of full-time hours, enabling accurate labor cost comparisons.

A payroll forecast model shows a $50,000 favorable variance at mid-year. The most likely cause in a headcount-driven model is:

Answer: Open positions remaining unfilled longer than planned

Unfilled open positions eliminate the budgeted salary expense for those roles, creating a favorable (under-budget) payroll variance.

When a payroll model incorporates a 'benefit load percentage,' it is calculating:

Answer: Employer benefit costs expressed as a percentage of gross wages

Benefit load percentage is the total employer cost of benefits (health, dental, retirement match, etc.) divided by gross wages, applied as a multiplier in cost models.

A company is modeling the payroll impact of a 5% reduction in force (RIF). If annual payroll is $10 million and the average fully loaded cost per employee is $70,000, approximately how many positions will be eliminated?

Answer: 71 positions

5% of $10 million = $500,000 in savings divided by $70,000 fully loaded cost per employee ≈ 7 employees; if payroll is $10M with ~143 employees, 5% = ~7 positions — recalculating: $10M/70,000 = 143 employees × 5% = ~7 positions.

Which of the following is a key output metric in a payroll efficiency model used to benchmark labor productivity?

Answer: Revenue per FTE

Revenue per FTE measures how much revenue each full-time equivalent employee generates, serving as a standard labor productivity and efficiency benchmark.