FPC Exam Chapter1 Questions and
Answers
Challenges to payroll - Answer-1. Complexity = Federal, state and local laws change frequently and must
be incorporated into company policies
2. Communication = clear, consise payroll information
3. Technology = software, equipment and web-based applications can enhance payroll process
(automatic time keeping, record storage and retrieval)
4. Accuracy = employee's pay, tax filing, management of reports, etc.
Employees vs. Independent Contractors - Answer-Employees: Federal income tax, social security tax,
medicare tax, state income tax and local income tax are with held by employer
Independent Contractor: taxes are not withheld. They provide a taxpayer Identification number ( TIN)
Who decides whether you are an employee or an Independent contractor? - Answer-Designated by
employer.
,Primary way to do this is by using the common law test
EXCEPT when the employer can classify an employee as a independent contractor under the reasonable
basis test
The common law test - Answer-2 questions
How independent is the employee?
How much control can be exercised over the worker?
Basically,
if the person works strictly for the company and gets paid by them only its an employee and if they
make their own hours and can hire outside of the company its an independent contractor
reasonable basis test - Answer-Employers can classify a worker who meets the Common law test as an
employee, instead as an independent contractor if:
- constantly treated as an IC and filed taxes as such
- longstanding, recognized practice in a significant segment of the employers industry of treating similar
workers as ICs
- Have a judicial precedent
- ABle to demonstrate that the IRS ruled it ( published ruling or private letter ruling, previous audit)
- Received Guidance from attorney or CPA
What happens when you have workers that aren't classified as EE or IC? - Answer-Temporary Service
agency, leasing companies or Professional Employer organizations (PEO)
, What are these companies responsible? - Answer-paying, withholding, reporting, providing benefits.
The company receiving the services contracts with these organizations rather than the employee
What happens when you misclassify a worker - Answer-Misclassifications represent a potential loss of
revenue for all levels of govt so the IRS, department of labor, state unemployment agencies and other
state and local govt agencies have come together to scope out and give sever penalties
The immigration Reform and control act of 1986 (IRCA) - Answer-requires employers to verify EE's
eligibility for employment in the U.S
What key provisions of the IRCA law affect employers? - Answer-Employer Sanctions: Having knowledge
that an employee is no longer authorized to work in the USA
Anti-discrimination: the law prohibits discrimination in hiring or recruiting workers on the basis of
national origin or citizenship.
Verification of eligibility: the burden to verify an EE falls on the ER. First day of work the EE must fill out
the I-9 ( Employment eligibility verification) Company mus hold for 3 years or 1 year after termination,
whichever comes first
Social Security Numbers and the Social Security Administration (SSA) - Answer-Employers to verify the
SSN on the W4 form ( EE withholding allowance certificate)
Submit any discrepancies to the SSA
Are there other ways for ER to check for discrepencies before its too late? - Answer-Yes, they can use
the Social Security Number Verification Service ( SSNVS) and the Department of HOmelands security's
(DHS) E-verify by supplying the Federal EMployer Identification Number (FEIN) plus the following:
Answers
Challenges to payroll - Answer-1. Complexity = Federal, state and local laws change frequently and must
be incorporated into company policies
2. Communication = clear, consise payroll information
3. Technology = software, equipment and web-based applications can enhance payroll process
(automatic time keeping, record storage and retrieval)
4. Accuracy = employee's pay, tax filing, management of reports, etc.
Employees vs. Independent Contractors - Answer-Employees: Federal income tax, social security tax,
medicare tax, state income tax and local income tax are with held by employer
Independent Contractor: taxes are not withheld. They provide a taxpayer Identification number ( TIN)
Who decides whether you are an employee or an Independent contractor? - Answer-Designated by
employer.
,Primary way to do this is by using the common law test
EXCEPT when the employer can classify an employee as a independent contractor under the reasonable
basis test
The common law test - Answer-2 questions
How independent is the employee?
How much control can be exercised over the worker?
Basically,
if the person works strictly for the company and gets paid by them only its an employee and if they
make their own hours and can hire outside of the company its an independent contractor
reasonable basis test - Answer-Employers can classify a worker who meets the Common law test as an
employee, instead as an independent contractor if:
- constantly treated as an IC and filed taxes as such
- longstanding, recognized practice in a significant segment of the employers industry of treating similar
workers as ICs
- Have a judicial precedent
- ABle to demonstrate that the IRS ruled it ( published ruling or private letter ruling, previous audit)
- Received Guidance from attorney or CPA
What happens when you have workers that aren't classified as EE or IC? - Answer-Temporary Service
agency, leasing companies or Professional Employer organizations (PEO)
, What are these companies responsible? - Answer-paying, withholding, reporting, providing benefits.
The company receiving the services contracts with these organizations rather than the employee
What happens when you misclassify a worker - Answer-Misclassifications represent a potential loss of
revenue for all levels of govt so the IRS, department of labor, state unemployment agencies and other
state and local govt agencies have come together to scope out and give sever penalties
The immigration Reform and control act of 1986 (IRCA) - Answer-requires employers to verify EE's
eligibility for employment in the U.S
What key provisions of the IRCA law affect employers? - Answer-Employer Sanctions: Having knowledge
that an employee is no longer authorized to work in the USA
Anti-discrimination: the law prohibits discrimination in hiring or recruiting workers on the basis of
national origin or citizenship.
Verification of eligibility: the burden to verify an EE falls on the ER. First day of work the EE must fill out
the I-9 ( Employment eligibility verification) Company mus hold for 3 years or 1 year after termination,
whichever comes first
Social Security Numbers and the Social Security Administration (SSA) - Answer-Employers to verify the
SSN on the W4 form ( EE withholding allowance certificate)
Submit any discrepancies to the SSA
Are there other ways for ER to check for discrepencies before its too late? - Answer-Yes, they can use
the Social Security Number Verification Service ( SSNVS) and the Department of HOmelands security's
(DHS) E-verify by supplying the Federal EMployer Identification Number (FEIN) plus the following:
