Comprehensive and Detailed Explanation:

Annual payroll reconciliation ensures that payroll records match tax filings. The best practice is to

start reconciliation after completing the W-2 audit, as this verifies:

Employee earnings and tax withholdings

Federal and state tax deposits

Year-end adjustments

Option B is incorrect because quarterly reconciliation is separate from annual reconciliation.

Option C is incorrect because reconciliation should start after verifying W-2s, not just at the year-end.

Option D is incorrect because reconciliation should be based on the prior year, not the first payroll of

the new year.

Reference:

IRS – Year-End Payroll Reporting Guide

Payroll.org – Annual Reconciliation Best Practices

Cash equivalents, such as gift cards (A), are always taxable income.

Nominal gifts (B, C, D) are generally tax-exempt under de minimis rules.

Reference:

IRS Publication 15-B (Taxable Fringe Benefits)

Comprehensive and Detailed Explanation:

Workflow mapping is a visual representation of payroll processes to ensure efficiency and accuracy.

Option A (Logical thought processes) ensures clarity and eliminates assumptions.

Option B (Depictions of sequences) accurately describes workflow design.

Option C (Steps follow without delay) ensures process efficiency.

Option D is incorrect because it describes Service Level Agreements (SLA), not workflow mapping.

Reference:

Payroll.org – Payroll Workflow Mapping Guide

Process Improvement Standards – Payroll System Optimization

Comprehensive and Detailed Explanation:

A Journal (Option C) is the first place where business transactions are recorded in chronological order

before posting to the General Ledger.

Option A (Balance Sheet) is incorrect because it is a financial statement, not a transaction log.

Option B (General Ledger) is incorrect because transactions must first be recorded in a journal before

being posted.

Option D (Trial Balance) is incorrect because it is a summary of ledger balances used for

reconciliation.

Reference:

GAAP Accounting Principles – Transaction Recording Process

Payroll.org – Payroll Accounting Workflow

Comprehensive and Detailed Explanation:

Constructive receipt means an employee is considered paid when wages are made available without

restriction, even if they do not physically receive the money.

Option A (On the paycheck date) is incorrect because the date of the paycheck does not determine

when wages are constructively received.

Option B (When cashed) is incorrect because an employee is considered paid before they cash the

check.

Option C (When ACH file is created) is incorrect because the wages are not yet available to the

employee.

Option D is correct because once wages are accessible (direct deposit or paycheck available for

pickup), the IRS considers them "received" for tax purposes.

Reference:

IRS Publication 538 – Constructive Receipt of Income

Payroll.org – Payroll Taxation Rules

Comprehensive and Detailed Explanation:

The Common Law Test is used by the IRS to determine whether a worker is classified as an employee

or an independent contractor. The test evaluates factors related to:

Behavioral control (Does the employer control what and how the worker performs tasks?)

Financial control (Are business expenses reimbursed? Is the worker making an independent profit or

loss?)

Type of relationship (Are there benefits like paid time off? Is the relationship expected to be long-

term?)

Option A (Time Test) is incorrect because it applies to qualifying earned income for tax benefits, not

employment classification.

Option B (Substantial Presence Test) is incorrect because it determines resident alien tax status.

Option C (Permanent Resident Test) is incorrect because it relates to immigration status, not

employment relationships.

Reference:

IRS Publication 15-A – Employer’s Guide to Worker Classification

Payroll.org – Independent Contractor vs. Employee Compliance

Comprehensive and Detailed Explanation:

The Family and Medical Leave Act (FMLA) requires employers to retain all leave-related records for at

least 3 years. This includes:

Employee requests for leave

Employer’s written responses

Dates and duration of leave taken

Premium payments for benefits during leave

Option A (2 years) is incorrect because the minimum requirement is 3 years.

Option C (4 years) and Option D (5 years) are incorrect because the law specifies a 3-year retention

period.

Reference:

U.S. Department of Labor – FMLA Recordkeeping Requirements

Payroll.org – Payroll Compliance for Employee Leave Records

Comprehensive and Detailed Explanation:

A pre-notification (pre-note) process is used by payroll departments to verify banking details before

initiating direct deposit payments.

A zero-dollar transaction is sent via ACH (Automated Clearing House) to ensure account validity.

This step prevents payment errors and fraudulent transactions.

Option A is incorrect because pre-notes are usually processed 3–6 days before payday, but not

necessarily five days in all cases.

Option B is incorrect because not all employers require a pre-note before direct deposit begins.

Option C is incorrect because ACH verification does not confirm the employee’s full legal name.

Reference:

National Automated Clearing House Association (NACHA) – ACH Pre-Notification Guidelines

Payroll.org – Direct Deposit Compliance Rules

Comprehensive and Detailed Explanation:

The payroll control process ensures accuracy and compliance by verifying records, preventing fraud,

and reconciling financial transactions.

Batch Totals (Option A) – Used to verify transaction accuracy.

System Edits (Option B) – Automated controls to prevent errors.

Balancing & Reconciliation (Option D) – Ensures payroll matches financial records.

Option C (Unauthorized Overtime) is incorrect because overtime management is an operational

issue, not a control process.

Reference:

Payroll.org – Payroll Audit and Internal Control Procedures

IRS – Payroll Recordkeeping and Compliance Guide

Comprehensive and Detailed Explanation:

A Service Level Agreement (SLA) (Option B) outlines the expected response times and resolution

times for payroll inquiries. This ensures that payroll staff provide timely assistance to employees.

Option A (General Service Contract) applies to external service providers, not internal payroll

departments.

Option C (Standards of Excellence) refers to broad performance benchmarks, but it does not include

specific response times.

Option D (Time Management) relates to personal efficiency, not defined service expectations.

Reference:

Payroll.org – Payroll Service Level Agreements Best Practices

HR Compliance Guide – Payroll Inquiry Handling