,Test Bank: Chapter 1 – Payroll Practices and System Fundamentals
Question 1
Which of the following best describes the primary objective of a payroll
system in an organization?
A. To ensure timely payment of accounts payable
B. To facilitate budget forecasting and variance analysis
C. To calculate and disburse employee compensation while ensuring
compliance with applicable laws
D. To manage employee performance evaluations
✅ Correct Answer: C
Rationale: The core function of payroll systems is to ensure that
employees are paid accurately and on time while complying with tax,
labor, and employment regulations. Performance evaluations and
budgeting are not direct functions of the payroll system.
Question 2
A company's internal audit reveals a consistent delay in wage payments
due to manual payroll processing. Which best practice would address
this issue?
A. Transition to biweekly payment schedules
B. Outsourcing human resources entirely
C. Implementing an integrated payroll software system
D. Increasing HR staffing levels
✅ Correct Answer: C
Rationale: Automating payroll with software reduces manual errors and
inefficiencies, improving processing speed and regulatory compliance.
,Increasing HR staffing may help, but it does not solve the root cause tied
to manual processing.
Question 3
Which regulatory body is responsible for enforcing federal minimum
wage and overtime provisions?
A. Internal Revenue Service (IRS)
B. Social Security Administration (SSA)
C. Department of Labor (DOL)
D. Financial Accounting Standards Board (FASB)
✅ Correct Answer: C
Rationale: The DOL enforces wage and hour laws under the Fair Labor
Standards Act (FLSA). The IRS handles tax-related matters, not labor
law enforcement.
Question 4
What distinguishes a payroll journal entry from other accounting
entries?
A. It involves only balance sheet accounts
B. It never includes tax liabilities
C. It requires recording both gross and net pay, as well as payroll tax
obligations
D. It is entered only annually
✅ Correct Answer: C
Rationale: Payroll entries are unique in that they must record gross
wages, tax withholdings, employer payroll tax liabilities, and net pay,
making them multi-faceted transactions.
, Question 5
Which of the following most accurately reflects the ethical obligation of
payroll professionals?
A. Maximizing employee net pay regardless of tax law
B. Avoiding compliance if costs are high
C. Ensuring all wage payments and deductions comply with applicable
laws and are transparent
D. Reporting only net earnings to the IRS
✅ Correct Answer: C
Rationale: Ethics in payroll demand lawful compliance, confidentiality,
and accuracy. Prioritizing net pay or avoiding compliance violates legal
and ethical standards.
Question 6
An exempt employee under FLSA is:
A. Paid hourly and entitled to overtime
B. Paid a fixed salary and not eligible for overtime under specific
conditions
C. Always paid more than $100,000 annually
D. Paid commission only
✅ Correct Answer: B
Rationale: Exempt status generally applies to salaried employees who
meet specific duties and salary thresholds. This classification exempts
them from overtime pay requirements.
Question 7
Which of the following best represents a key distinction between
employee and independent contractor status for payroll purposes?
Question 1
Which of the following best describes the primary objective of a payroll
system in an organization?
A. To ensure timely payment of accounts payable
B. To facilitate budget forecasting and variance analysis
C. To calculate and disburse employee compensation while ensuring
compliance with applicable laws
D. To manage employee performance evaluations
✅ Correct Answer: C
Rationale: The core function of payroll systems is to ensure that
employees are paid accurately and on time while complying with tax,
labor, and employment regulations. Performance evaluations and
budgeting are not direct functions of the payroll system.
Question 2
A company's internal audit reveals a consistent delay in wage payments
due to manual payroll processing. Which best practice would address
this issue?
A. Transition to biweekly payment schedules
B. Outsourcing human resources entirely
C. Implementing an integrated payroll software system
D. Increasing HR staffing levels
✅ Correct Answer: C
Rationale: Automating payroll with software reduces manual errors and
inefficiencies, improving processing speed and regulatory compliance.
,Increasing HR staffing may help, but it does not solve the root cause tied
to manual processing.
Question 3
Which regulatory body is responsible for enforcing federal minimum
wage and overtime provisions?
A. Internal Revenue Service (IRS)
B. Social Security Administration (SSA)
C. Department of Labor (DOL)
D. Financial Accounting Standards Board (FASB)
✅ Correct Answer: C
Rationale: The DOL enforces wage and hour laws under the Fair Labor
Standards Act (FLSA). The IRS handles tax-related matters, not labor
law enforcement.
Question 4
What distinguishes a payroll journal entry from other accounting
entries?
A. It involves only balance sheet accounts
B. It never includes tax liabilities
C. It requires recording both gross and net pay, as well as payroll tax
obligations
D. It is entered only annually
✅ Correct Answer: C
Rationale: Payroll entries are unique in that they must record gross
wages, tax withholdings, employer payroll tax liabilities, and net pay,
making them multi-faceted transactions.
, Question 5
Which of the following most accurately reflects the ethical obligation of
payroll professionals?
A. Maximizing employee net pay regardless of tax law
B. Avoiding compliance if costs are high
C. Ensuring all wage payments and deductions comply with applicable
laws and are transparent
D. Reporting only net earnings to the IRS
✅ Correct Answer: C
Rationale: Ethics in payroll demand lawful compliance, confidentiality,
and accuracy. Prioritizing net pay or avoiding compliance violates legal
and ethical standards.
Question 6
An exempt employee under FLSA is:
A. Paid hourly and entitled to overtime
B. Paid a fixed salary and not eligible for overtime under specific
conditions
C. Always paid more than $100,000 annually
D. Paid commission only
✅ Correct Answer: B
Rationale: Exempt status generally applies to salaried employees who
meet specific duties and salary thresholds. This classification exempts
them from overtime pay requirements.
Question 7
Which of the following best represents a key distinction between
employee and independent contractor status for payroll purposes?
