PF1 National Payroll Institute Payroll Fundamentals 1Exam Free Practice Exam Questions (2026 Updated)

Service Canada treats commission salespeople (paid solely by commission or salary plus irregularly paid commission) as a special ROE situation where the weekly averaging formula is used. In that scenario, the ROE Guide states that for Block 12 (Final pay period ending date) you must use the Saturday of the week that contains the last day for which paid (Block 11).

This is different from the usual rule for most employees, where Block 12 is simply the end date of the final pay period that includes the Block 11 date (and it can’t be earlier than Block 11).

The key reason is consistency in applying the weekly averaging approach: even if the employer’s actual payroll cycle is not weekly, commission-only/irregular-commission employees are reported using a weekly framework for ROE purposes. Payroll should therefore align Block 12 to the correct “weekly” period end (Saturday) when that rule applies, to avoid ROE errors and Service Canada follow-up.

Commission employees have a specific ROE rule. Service Canada’s ROE Guide explains that for employees whose earnings consist mainly of commissions, an interruption of earnings occurs only when the employment contract is terminated—unless the employee stops working due to specified EI-related reasons such as illness/injury/quarantine, maternity/pregnancy, parental leave, or compassionate care/family caregiver leaves.

This means the usual 7-day rule (7 consecutive days with no work and no insurable earnings) generally does not trigger an interruption of earnings for mainly-commission employees as long as the contract continues. In other words, if the employee stops working for reasons like vacation or a leave of absence but remains under contract, Service Canada indicates there is no interruption of earnings and therefore no ROE is issued just because of time without commissions/work.

So the correct choice is when the employment relationship/contract is terminated (option C).

A payment made to “catch up” wages because a pay increase was processed late is a retroactive payment. The CRA provides different income tax calculation approaches depending on the payment type and specifically lists “Retroactive payments” as its own category, separate from regular tax-table calculations, lump-sum, and bonus/irregular methods.

For bonuses and retroactive pay increases, the CRA also points employers to the Payroll Deductions Online Calculator (PDOC) to calculate CPP, EI, and income tax correctly, which aligns with using the appropriate CRA method for retroactive amounts.

Because this situation is explicitly a retroactive adjustment (two pay periods late), the correct choice is the Retroactive tax method (option C), not the bonus/irregular method, not the lump-sum method, and not the regular tax tables.

An ROE is required when an employee experiences an interruption of earnings, such as 7 consecutive calendar days with no work and no insurable earnings (the “7-day rule”), or when earnings fall below 60% of regular weekly earnings for specific reasons (the “60% rule”). That means a 6-week unpaid leave (A) typically triggers an interruption of earnings, and a drop to 40% of normal earnings (B) meets the “below 60%” threshold (when due to the listed leave reasons). A layoff with no recall (D) also triggers an interruption of earnings under the 7-day rule.

However, Service Canada lists a special situation for a change in ownership: the former employer does not have to issue ROEs if (1) there is no actual break in the employee receiving earnings, and (2) payroll records are available to the new owner and the new owner agrees to issue a single ROE covering both periods if needed. That is exactly option C, so no ROE is required in that scenario.

A hiring authorization package/checklist typically ensures the organization collects the documents needed to onboard the employee and set them up correctly in payroll and HR systems. This often includes items like an offer letter, signed policies, banking details for direct deposit, emergency contacts, and required HR/legal acknowledgements. A confidentiality agreement is a common onboarding document because it protects the employer’s confidential information and can be required regardless of payroll deductions.

The other options are not good examples of “required information” for all new hires. Employees do not give “consent” for statutory deductions—deductions like CPP, EI, and income tax withholding are required by law and employers must withhold them when applicable. A “clearance certificate” is not a standard universal onboarding requirement for payroll in Canada. A T1213 is only completed in special situations where an employee requests CRA authorization to reduce tax withheld at source; it is not something most new hires must provide.

Legislated wages in lieu of notice are treated as pensionable employment earnings for CPP purposes, so they are included with the employee’s final regular pay when calculating CPP deductions (assuming no CPP exemption applies).

Step 1: Determine total pensionable earnings for the week:

$7,760.00 + $875.00 = $8,635.00.

Step 2: Subtract the CPP basic exemption (Year’s Basic Exemption is $3,500 annually). For a weekly payroll, the basic exemption is prorated:

$3,500 ÷ 52 = $67.31.

CPP contributory earnings for the week:

$8,635.00 − $67.31 = $8,567.69.

Step 3: Apply the 2026 CPP employee contribution rate of 5.95% (base CPP). The question states the annual maximum will not be exceeded, so no capping is required in this calculation.

CPP contribution:

$8,567.69 × 5.95% = $509.7777…, rounded to $509.78.

An expense reimbursement is a repayment to an employee for business costs they already paid personally (for example, meals, mileage, supplies), typically supported by receipts or an expense report. CRA’s guidance explains that a reimbursement is a payment made to repay amounts the employee spent while conducting the employer’s business, and that a reasonable reimbursement is generally not included in the employee’s income.

That’s why reimbursements are generally not part of “earnings” for payroll calculations—they are not compensation for work performed; they are repayment of a business expense. This differs from an allowance, which is usually a fixed amount paid without requiring receipts; allowances are often taxable unless a specific CRA exception applies.

So the correct term for “dollar amounts paid to cover job expenses incurred, but not considered earnings” is expense reimbursements (option D). Payroll best practice is to ensure reimbursements are properly documented and reasonable to support non-taxable treatment.

This is a benefit because the employer is providing access to an automobile (leased by the employer) that the employee can use for personal driving as well as business. The CRA explains that when an employer-owned or employer-leased automobile is made available for personal use, the employee receives a taxable automobile benefit, generally made up of a standby charge (availability of the vehicle) and potentially an operating expense benefit (if the employer pays operating costs and the employee has personal kilometres).

It is not an allowance (which is typically a cash amount given to the employee), and it is not an expense reimbursement (repayment of employee-incurred business expenses). It is also not an earning (pay for work performed). Payroll’s role is to track availability days/months, business vs personal kilometres, any employee reimbursements, apply the CRA calculation methods, and report the taxable benefit on the employee’s information slip with the correct taxable benefit treatment.

Regular earnings for an hourly employee are calculated as hourly rate × hours worked. Because “bi-weekly” means two weeks of work paid together, you calculate one week’s regular earnings and then multiply by two (assuming the hours are the same each week and there is no overtime premium indicated).

Step 1: Weekly regular earnings:

$10.10 × 37.5 hours = $10.10 × 37 + $10.10 × 0.5

= $373.70 + $5.05

= $378.75.

Step 2: Bi-weekly regular earnings (2 weeks):

$378.75 × 2 = $757.50.

So Matt’s regular bi-weekly earnings are $757.50.

In payroll documentation, “regular earnings” are the employee’s base wages before statutory deductions (CPP/QPP, EI, income tax) and before other deductions, and they exclude any separately calculated earnings like overtime premiums or taxable benefits unless stated. This approach (rate × hours, then adjust for pay period) is the standard method used to compute gross/regular pay for hourly employees before moving on to deductions and net pay.

For payroll withholding, income tax is calculated on taxable income for the pay period, so only deductions that are income-tax deductible (or otherwise reduce taxable income at source) will reduce the employee’s taxable base for withholding. Employee contributions to an RRSP are generally deductible for the employee, which is why payroll-deducted RRSP contributions (such as contributions to a group RRSP taken off the paycheque) reduce the amount of income tax withheld when the payroll system is set up to treat them as deductible contributions. The CRA confirms that deductible RRSP contributions can be used to reduce your tax.

By contrast, paying provincial health care premiums (where applicable) and paying an employee share of group benefit plan premiums are not automatic “reduce taxable income at source” deductions in the same way for payroll withholding; they may be personal expenses and, depending on the plan/premium type, may only affect the employee’s personal tax situation through credits/deductions when filing, not the standard payroll withholding base. Therefore, the only correct choice is A.

A strong hire-authorization/onboarding checklist ensures payroll and HR collect documents needed to pay the employee accurately and enroll them in required programs. Abenefit enrollment formis a practical, common checklist item because many employers offer benefit plans that require employee elections (for example, health/dental coverage levels, beneficiary information, dependent details, etc.). Indeed’s Canadian onboarding guidance explicitly notes employers often collectbenefits enrollmentpaperwork as part of essential new employee forms and onboarding checklists.

By contrast, aT1213(Request to Reduce Tax Deductions at Source) is not routinely required for all hires; it is only used when an employee applies for CRA authorization to reduce tax withheld. A “clearance certificate” is not a standard Canada-wide payroll onboarding requirement for typical employment relationships. Therefore, “All of the above” is not correct.

Selectingbenefit enrollment formbest matches the purpose of a hiring authorization checklist: ensuring all employment setup steps are completed (pay setup, statutory forms, and benefits enrollment where offered) so payroll deductions and coverage are handled correctly from the start.

Regular salary, vacation pay, and commissions are generally treated as income from employment because they are amounts paid for services performed during employment. In contrast, what many people call “severance pay” is often classified by the CRA as a retiring allowance—an amount paid when or after an employee retires or loses their job, in recognition of long service or for the loss of employment.

This distinction matters in payroll because a retiring allowance has its own rules for withholding and potential RRSP/RPP transfer eligibility, and it is not treated the same way as normal employment income earned while actively employed. CRA technical guidance also draws lines between amounts that are employment income versus retiring allowance depending on the nature/timing of the payment.

So, among the options listed, severance pay (when it is a retiring allowance) is the one that is not considered income from employment in the way salary/vacation pay/commissions are.

CRA’s method for bonus/irregular payments paid separately is to calculate income tax on the combined pay (regular pay + the irregular payment) using the regular tax tables, then subtract the tax that would apply to the regular pay alone. The difference is the income tax to withhold from the irregular payment.

Here, the semi-monthly taxable pay is:

Regular pay = $1,800.00

Regular + vacation payout = $3,200.00

Using the 2026 Alberta semi-monthly (24 pay periods) tax tables with claim code 1:

At $1,800, Federal tax = $130.45 and Alberta tax = $58.55 → Total = $189.00.

At $3,200, Federal tax = $356.50 and Alberta tax = $174.00 → Total = $530.50.

Income tax on the vacation payout = $530.50 − $189.00 = $341.50.

CPP (including the enhanced portion) is a separate statutory deduction that must also be calculated on the payout, but this question asked specifically for income tax withholding.

First calculate Ronda’s pensionable earnings for the week. Her gross pay is:

$12.50 × 40 = $500.00.

CPP is calculated on pensionable earnings after subtracting the basic exemption (the Year’s Basic Exemption, YBE), prorated to the pay period. The CRA confirms the YBE is $3,500 and the employee CPP contribution rate for 2026 is 5.95% for base CPP.

Weekly exemption = $3,500 ÷ 52 = $67.31 (rounded to cents).

Pensionable earnings subject to CPP this week = $500.00 − $67.31 = $432.69.

CPP contribution = $432.69 × 5.95% = $432.69 × 0.0595 = $25.745…, which rounds to $25.75.

This deduction continues each pay until the employee reaches the annual CPP maximum contribution for the year (at which point CPP stops for the remainder of the year).

Payroll deductions are typically applied in a priority order to ensure the employer meets mandatory legal obligations first and avoids creating liability. Standard Canadian payroll training materials commonly present five categories withheld in this order: (1) statutory deductions, (2) legal deductions, (3) union deductions, (4) company-compulsory deductions, and (5) voluntary deductions.

Statutory deductions (CPP/QPP, EI, income tax, and where applicable NWT/Nunavut payroll tax) have top priority because employers are legally required to deduct and remit them.

Legal deductions (such as CRA requirements to pay/garnishments) are next because they are enforced by law and can create employer liability if not followed.

Union deductions follow where required by a collective agreement.

Company-compulsory deductions (for example, required benefit premiums) come after those.

Voluntary deductions (charity, savings plans, etc.) are last and only taken if funds remain.

Therefore, option D is the correct order.

In Canadian payroll, a benefit generally means the employer has provided something of value to the employee (or paid for something on the employee’s behalf), rather than paying cash for work performed. The CRA’sEmployers’ Guide – Taxable Benefits and Allowances (T4130)explains that a benefit/allowance may be provided in cash (for example, an allowance) or in a manner other than cash (for example, a parking space or gift), and that employers may have to include the value of that benefit/allowance in the employee’s income depending on the circumstances.

Option C best captures this “value of something provided or paid for” concept. Option B describes wages/salary (earnings for work). Option A aligns more with reimbursements/expense coverage. Option D aligns with allowances for business use of personal property (often treated separately and may be taxable or non-taxable depending on CRA rules and documentation). Payroll’s role is to determine whether the benefit is taxable, value it correctly, and apply the right statutory withholdings and reporting.

CRA’s automobile benefit calculations require multiple data points because there are usuallytwo components: thestandby charge(vehicle availability) and theoperating expense benefit(personal driving where the employer pays operating costs). CRA’s guidance on employer-provided automobiles explains that standby charge calculations use the automobile’scost (capital cost) including applicable taxesand the time the vehicle wasavailableto the employee, while the reduced standby charge and operating benefit depend onkilometres drivenand the split betweenbusiness and personal use.

To determine whether areduced standby chargeapplies, you need availability plusbusiness-use requirements(which are evidenced through total/business kilometres). To calculate the operating expense benefit, you needpersonal kilometres(often derived from total kilometres minus business kilometres) or detailed personal km directly.

Therefore, the complete and correct set of required inputs is:capital cost (with sales tax), availability, total kilometres, business kilometres, and personal kilometres—which is optionD.

The CRA defines a death benefit as the gross amount of any payment made on or after the death of an employee to recognize the employee’s service in an office or employment. It can be paid to a surviving spouse/common-law partner, heir, or the estate.

This is different from amounts the employee already earned before death (for example, regular wages up to the date of death, or vacation pay that was accrued/earned). CRA guidance treats wages and employment income earned up to and including the date of death as amounts to be reported on a T4 slip, not as a death benefit.

It’s also different from a life insurance payout from an insurer (which is not an employer-paid “death benefit” for payroll reporting purposes). The payroll impact is that a qualifying death benefit is generally reported as a special payment (often on a T4A), following CRA rules for deductions and reporting of death benefits.

The CRA defines a benefit as something the employee receives when the employer pays for or gives something that is personal in nature (a good or service), either directly to the employee or through a third party. CRA’s T4130 guide describes a benefit as a good or service you give (or arrange for) such as free use of employer property, and it is the value of that benefit that may need to be included in the employee’s income if taxable.

This matches the wording in the question: “dollar values attributed to something the employer has either provided…or paid for…on an employee’s behalf.” By contrast, earnings are pay for work performed (salary, wages, commissions). Allowances are fixed amounts paid to help cover anticipated expenses without receipts (often taxable unless an exception applies). Expense reimbursements repay actual business expenses (typically supported by receipts) and are generally not treated as earnings.

So the correct classification is Benefits.