Fundamental Payroll Core Payroll Concepts Questions and Answers — Questions and Answers
Question 1: An employee works 45 hours in a single workweek. The employee's regular rate of pay is $20 per hour. Under the Fair Labor Standards Act (FLSA), what is the minimum gross pay this employee must receive for the week?
- $900
- $950 (Correct answer)
- $1,000
- $1,350
Correct answer: $950
The FLSA requires that non-exempt employees be paid overtime at a rate of at least 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. The calculation is: (40 hours * $20/hour) + (5 hours * $20/hour * 1.5) = $800 + $150 = $950.
Question 2: Which of the following factors is most critical in determining whether a worker is classified as an employee versus an independent contractor?
- The worker's preference for classification
- The issuance of a Form 1099-NEC at year-end
- The degree of control and independence in the work relationship (Correct answer)
- The duration of the working relationship
Correct answer: The degree of control and independence in the work relationship
The primary determinant of worker status is the degree of control the business has over the worker. If the business has the right to control what the worker does and how the job is done, the worker is generally considered an employee.
Question 3: According to the Fair Labor Standards Act (FLSA) recordkeeping requirements, for how long must an employer retain an employee's payroll records?
- One year
- Two years
- Three years (Correct answer)
- Four years
Correct answer: Three years
The FLSA requires employers to preserve payroll records, collective bargaining agreements, sales, and purchase records for at least three years. Records on which wage computations are based, such as time cards, should be retained for two years.
Question 4: An employee has gross earnings of $2,000 for a pay period. They contribute $100 to a pre-tax 401(k) plan and have a $50 pre-tax deduction for health insurance. What are the employee's taxable wages for Social Security and Medicare (FICA) taxes?
- $2,000
- $1,900
- $1,950
- $1,850 (Correct answer)
Correct answer: $1,850
FICA taxable wages are calculated by subtracting qualifying pre-tax deductions from gross pay. Both 401(k) contributions and health insurance premiums are typically exempt from FICA taxes. Therefore, the calculation is $2,000 (Gross) - $100 (401k) - $50 (Health Insurance) = $1,850.
Question 5: What is the primary purpose of an employee completing IRS Form W-4, Employee's Withholding Certificate?
- To verify the employee's eligibility to work in the United States.
- To report the employee's annual wages and taxes withheld to the Social Security Administration.
- To allow the employer to determine the correct amount of federal income tax to withhold. (Correct answer)
- To enroll the employee in company-sponsored benefits programs.
Correct answer: To allow the employer to determine the correct amount of federal income tax to withhold.
Form W-4 provides the employer with the employee's filing status, number of dependents, and other adjustments needed to calculate the proper amount of federal income tax to withhold from their pay.
Question 6: Which of the following are the two components of the Federal Insurance Contributions Act (FICA) tax that are withheld from an employee's wages?
- Federal Income Tax and State Income Tax
- Social Security and Federal Unemployment (FUTA)
- Medicare and State Unemployment (SUTA)
- Social Security and Medicare (Correct answer)
Correct answer: Social Security and Medicare
FICA tax is composed of two separate taxes: a 6.2% Social Security tax and a 1.45% Medicare tax. Both the employee and the employer pay these taxes.
Fundamental Payroll Core Payroll Concepts Questions and Answers
An employee works 45 hours in a single workweek.
The employee's regular rate of pay is $20 per hour.
Under the Fair Labor Standards Act (FLSA), what is the minimum gross pay this employee must receive for the week?