Free FPC Exam Flashcards

Look at the actual working relationship, not the label in the contract. Control over schedule, tools, methods, supervision, and ongoing work usually points toward employee status.

Employees give Form W-4 so payroll can calculate federal income tax withholding. Independent contractors generally give Form W-9 so the payer has a certified TIN for information reporting.

Treating an employee as a contractor can create unpaid withholding, employer payroll taxes, wage-hour exposure, penalties, interest, and corrected reporting work.

If a reportable payee does not provide a valid TIN when required, backup withholding may apply. Payroll should not treat the missing TIN as just a paperwork issue.

Common-law analysis looks at behavioral control, financial control, and relationship facts. A defensible classification memo weighs all three instead of relying on one convenient fact.

For nonexempt employees, federal overtime generally starts after 40 hours in a single workweek. Employers cannot average two workweeks together to erase overtime.

A nondiscretionary bonus usually belongs in the regular rate. If it covers a prior period, payroll may need to recalculate overtime for that period and pay the extra premium.

If the employer knows or should know a nonexempt employee worked overtime, the time must be paid. Discipline for violating policy is separate from the duty to pay wages.

When a nonexempt employee works at multiple rates, overtime commonly uses a weighted-average regular rate unless a permitted alternative agreement applies.

Private-sector employers generally cannot give nonexempt employees compensatory time off instead of overtime pay. Public-sector rules are different, so do not generalize.

Cash pay and cash-equivalent benefits are taxable wages unless a specific exclusion applies. Payroll should start with inclusion, then document any exclusion.

Small, infrequent benefits can be excluded when tracking them would be unreasonable. Cash and gift cards are not de minimis just because the dollar amount is low.

Employer-provided group-term life coverage above the IRS exclusion limit can create imputed taxable income. Payroll must include the taxable value even though no cash was paid.

Business use may be excluded, but personal-use value is generally a taxable fringe benefit. Payroll needs a valuation method and timely inclusion in wages.

Qualified Section 125 health deductions usually reduce federal income tax wages and often FICA wages. Traditional 401(k) deferrals reduce federal income tax wages but generally remain subject to FICA.

Form W-4 tells payroll how to calculate federal income tax withholding. Without a valid W-4, payroll must use IRS default withholding treatment rather than guessing.

An employee claiming exemption from federal income tax withholding generally must renew the claim by February 15. If not renewed, payroll should stop treating the employee as exempt.

A lock-in letter tells the employer the withholding settings to use. Payroll must follow the IRS instruction until the IRS releases or changes it, even if the employee submits a conflicting W-4.

Use Form W-2c to correct an employee wage statement after filing. Form W-3c transmits corrected wage totals to the Social Security Administration.

Employees receive Form W-2 for wages subject to payroll rules. Independent contractor nonemployee compensation is generally reported on Form 1099-NEC, not through payroll withholding as wages.

Social Security and regular Medicare taxes are shared between employee and employer. Social Security has a wage base; regular Medicare generally applies to all covered wages.

Additional Medicare tax is withheld from employee wages above the statutory threshold and is not matched by the employer. It is an employee withholding obligation, not a shared tax.

FUTA is the federal unemployment tax; SUTA is state unemployment tax. State rates and wage bases vary, and SUTA credit rules can affect net FUTA liability.

Federal employment tax deposit schedule is based on tax liability during the IRS lookback period. It is not chosen by payroll preference or pay frequency alone.

If accumulated federal employment tax reaches $100,000 on any day in a deposit period, the employer generally must deposit by the next business day and may be accelerated to semiweekly status.

Start with gross earnings, determine taxable wages, calculate required taxes, subtract authorized deductions and garnishments, then reconcile the resulting net pay to funding and reports.

When a fixed weekly salary covers 40 hours for a nonexempt employee, the regular-rate starting point is usually salary divided by 40 before computing overtime premium.

If a pay increase applies to a prior period that included overtime, payroll should recalculate the regular rate for that period and pay the additional overtime due.

Gross-up solves for the gross amount needed to deliver a promised net payment after taxes. It is used when policy guarantees the employee a specific take-home amount.

Rounding time punches can be permissible only when the practice is neutral over time and does not systematically underpay employees.

For most federal garnishment limits, disposable earnings are gross earnings minus legally required deductions. Voluntary deductions are not automatically subtracted.

Ordinary debt garnishments are limited by federal CCPA rules, and state law can be more protective. Payroll must apply the legal maximum rather than simply honoring the full order amount.

Child support orders usually have priority over ordinary creditor garnishments and may use higher withholding limits. Priority rules prevent over-withholding when orders compete.

A bankruptcy order can stop or change certain garnishments. Payroll should review the order promptly and update withholding only through documented legal instructions.

Federal law generally protects an employee from being fired because of one indebtedness garnishment. Payroll should separate order processing from employment discipline decisions.

FLSA basic payroll records are generally kept at least 3 years, wage-computation support at least 2 years, and IRS employment tax records at least 4 years.

Form 941 is the quarterly federal employment tax return. Form 940 is the annual FUTA return. Forms W-2 report employee annual wages and taxes.

A prior Form 941 error is generally corrected on Form 941-X. The correction should also be checked against deposits, wage statements, state filings, and GL balances.

Reconcile quarterly Form 941 totals, annual W-2/W-3 totals, payroll registers, deposits, and payroll-related general ledger accounts before filing or correcting year-end reports.

Electronic records are acceptable when they remain complete, readable, retrievable, secure, and backed up. End-of-retention disposal should protect confidential payroll data.

Users should have only the payroll system access needed for their job. Unique user IDs, MFA for privileged roles, and audit logs make actions traceable.

No one person should control master-data setup, time approval, payroll calculation, payment release, and bank reconciliation. Where staffing is limited, compensating review controls are needed.

Batch totals compare expected records or amounts to processed records or amounts. They help catch missing, duplicated, or altered data before payroll is finalized.

An exception report is useful only when someone independent reviews it timely, investigates unusual items, and documents the resolution.

A recovery plan should define payroll-critical systems, backups, manual workarounds, recovery objectives, contacts, and testing. Untested plans are weak audit evidence.

Payroll entries typically debit wage or salary expense and credit cash or a clearing account plus liability accounts for taxes, deductions, and other amounts owed.

Amounts withheld from employees are liabilities until remitted to tax agencies, benefit carriers, courts, or other payees. They are not employer expense when withheld.

An accrual records compensation earned but not yet paid in the proper accounting period. Reversing it in the next period helps avoid double counting when actual payroll posts.

A clearing account should return to near zero after payroll funding and postings. Remaining balances suggest timing differences, posting errors, or incomplete transactions needing investigation.

A strong remediation plan fixes root cause, assigns an owner, sets a due date, and adds monitoring evidence. Repeating the same finding usually signals weak follow-through.