Fundamental Payroll Worker Status and FLSA Questions and Answers

Question 1

Under the Fair Labor Standards Act (FLSA), which of the following is the primary consideration when determining if a worker is an employee or an independent contractor?

Accepted Answer

The economic reality of the working relationship, indicating economic dependence or independence.

Answer

The U.S. Department of Labor and courts use the "economic reality" test to determine worker status under the FLSA. This test analyzes the entire working relationship to see if the worker is economically dependent on the employer for work (making them an employee) or if they are truly in business for themselves (making them an independent contractor). While control is a factor, the overarching principle is the economic dependence of the worker.

Question 2

A non-exempt employee works 45 hours in a single workweek. According to the FLSA, how must the employer calculate the employee's pay for that week?

Accepted Answer

Pay 40 hours at the regular rate and 5 hours at 1.5 times the regular rate.

Answer

The FLSA requires that non-exempt employees be paid overtime for any hours worked over 40 in a workweek. The overtime rate must be at least one and one-half times their regular rate of pay. Therefore, the 5 hours worked beyond the standard 40-hour week must be compensated at this premium rate.

Question 3

A company hires a graphic designer to create a new company logo. The designer uses their own computer and software, sets their own work hours, and is paid a flat fee for the completed project. The designer is also free to work for other clients simultaneously. Under the FLSA's economic reality test, which factor most strongly suggests the designer is an independent contractor?

Accepted Answer

The designer's opportunity for profit or loss based on their managerial skill.

Answer

A key factor in the economic reality test is the worker's opportunity for profit or loss depending on their managerial skill. In this scenario, the designer can increase profit by working efficiently and taking on other clients. They also bear the risk of loss if their expenses exceed the flat fee. This business-like independence, along with using their own tools and controlling their schedule, points toward an independent contractor status.

Question 4

Which of the following tests is used by the IRS to help determine worker status for federal tax purposes, focusing on behavioral control, financial control, and the relationship of the parties?

Accepted Answer

The Common Law Test

Answer

The IRS uses the Common Law Test to determine worker status. This test examines evidence across three main categories: Behavioral Control (does the company control how the worker does the job?), Financial Control (does the business control the financial aspects of the worker's job?), and the Type of Relationship (are there written contracts or benefits?).

Question 5

To qualify for the administrative exemption under the FLSA, an employee must meet all of the following criteria EXCEPT:

Accepted Answer

Hold a degree in business administration.

Answer

The FLSA's administrative exemption has three main requirements: a salary basis test, a salary level test, and a duties test. The duties test requires that the employee's primary duty is office work related to management or general business operations and includes the exercise of discretion and independent judgment. There is no requirement for a specific academic degree to qualify for this exemption.

Fundamental Payroll Certification Practice Test

Fundamental Payroll Certification Practice Test

Fundamental Payroll Worker Status and FLSA Questions and Answers