Fundamental Payroll Certification (FPC) Practice Exam

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What is the function of the Automated Clearing House (ACH)?

To store employee records
To serve as a central agency for processing fund transfers between banks
To regulate employee wages
To manage payroll tax deposits

The correct answer is: To serve as a central agency for processing fund transfers between banks

The Automated Clearing House (ACH) serves as a central agency for processing fund transfers between banks, which is fundamental to its operations. It facilitates electronic payments and direct deposits, allowing for efficient movement of money between banks and several financial institutions. This system is crucial for payroll processing, as companies can transfer employees' wages directly to their bank accounts without the need for physical checks. Additionally, the ACH system supports various types of transactions, including consumer bill payments, business-to-business payments, and government transactions. By being an intermediary in these transactions, the ACH enhances the speed and reliability of transfers, making it an essential component of the modern financial system. The other options refer to functions that are not directly related to the core purpose of the ACH. Storing employee records is typically the role of payroll software systems, regulating employee wages falls under labor laws and regulations, and managing payroll tax deposits is handled through specific tax regulatory agencies and payroll systems rather than the ACH itself.