Fundamental Payroll Certification Fundamental Payroll Systems and Administration 3 — Questions and Answers
Question 1: Which payroll processing method requires the employer to manage all payroll functions internally without outside assistance?
- Outsourced payroll
- In-house (manual) payroll (Correct answer)
- Professional Employer Organization (PEO)
- Payroll service bureau
Correct answer: In-house (manual) payroll
In-house or manual payroll means the employer handles all calculations, tax filings, and record-keeping using internal staff and systems.
Question 2: A company uses a payroll service bureau. Who is ultimately responsible for ensuring payroll taxes are filed correctly and on time?
- The payroll service bureau
- The employer (Correct answer)
- The IRS
- The state tax authority
Correct answer: The employer
Even when using a service bureau, the employer retains legal responsibility for accurate and timely payroll tax compliance.
Question 3: What does 'gross-to-net' processing refer to in a payroll system?
- Converting net pay to gross for reporting
- Calculating an employee's net pay by subtracting taxes and deductions from gross earnings (Correct answer)
- Transferring funds from the employer's bank to the payroll account
- Reconciling the payroll register with the general ledger
Correct answer: Calculating an employee's net pay by subtracting taxes and deductions from gross earnings
Gross-to-net processing starts with total earnings and systematically subtracts all required taxes and voluntary deductions to arrive at net pay.
Question 4: Which control helps prevent a single payroll employee from both authorizing payroll and disbursing funds?
- Dual authorization or segregation of duties (Correct answer)
- Electronic funds transfer
- Positive pay
- Employee self-service
Correct answer: Dual authorization or segregation of duties
Segregation of duties requires that different individuals authorize payroll and actually release the funds, reducing the risk of fraud.
Question 5: An employee is classified as exempt from overtime. Under the FLSA, which of the following is NOT a requirement for the executive exemption?
- Primary duty is management
- Regularly directs the work of two or more full-time employees
- Has authority to hire or fire
- Must be paid on an hourly basis (Correct answer)
Correct answer: Must be paid on an hourly basis
The FLSA executive exemption requires a salary basis of at least the threshold amount, not hourly pay; hourly payment typically disqualifies the exemption.
Question 6: How does a payroll system typically handle a mid-period pay rate change for an hourly employee?
- Applies the new rate retroactively to the entire period
- Calculates pay at the old rate for hours before the change and the new rate for hours after (Correct answer)
- Applies the new rate starting only in the next full pay period
- Averages the old and new rates for the entire period
Correct answer: Calculates pay at the old rate for hours before the change and the new rate for hours after
Most payroll systems support split-rate processing, applying each rate only to the hours worked while that rate was in effect.
Question 7: Which federal agency must employers notify when setting up a new payroll account for tax withholding purposes?
- Department of Labor
- Social Security Administration
- Internal Revenue Service (Correct answer)
- Bureau of Labor Statistics
Correct answer: Internal Revenue Service
Employers obtain an Employer Identification Number (EIN) from the IRS and use it for all federal payroll tax deposits and filings.
Fundamental Payroll Certification Fundamental Payroll Systems and Administration 3
Which payroll processing method requires the employer to manage all payroll functions internally without outside assistance?