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26th May 2023

Payroll Audits: An insight into the procedure & benefits [+checklist]

Ensuring your payroll is performed correctly is essential to keeping a business alive. No matter how reliable your payroll software is, if you make any mistakes like inputting data incorrectly you may run into a few problems.

One way in which you can prevent these issues is by  conducting a payroll audit. This can highlight any issues within your payroll, allowing you to solve them as soon as possible, helping you minimise the effects they have on you and your company.

Due to this, we've put together some key information you’ll need to know before conducting a payroll audit.


What is a payroll audit?

A payroll audit is the analysis of a company’s payroll processes to make sure they’re accurate. The audits can look at things like active employees, pay rates, wages and tax withholdings.

Audits should be completed at least once a year to review whether your processes are up-to-date and compliant with the latest rules and regulations.


Benefits of undertaking a payroll audit

It’s clear that completing a payroll audit is important and can have many benefits for both businesses and staff, such as:

●       Preventing fraud by removing employees that don’t work for you anymore

●       Finding manual errors

●       Verifying tax deductions are correct

●       Checking whether any paid or unpaid leave has been calculated and given fairly

●       Checking employees clocking in and out hours are correct compared to what they were put down for on a rota

Not completing a payroll audit could lead to you finding issues too late or not at all, causing your company to lose money, break employment laws or remit incorrect tax amounts.


Payroll audit process

When completing a payroll audit there are a few procedures you should follow, such as:

Reviewing who’s still on your payroll

Reviewing your payroll list allows you to understand whether you still have people on the list that don’t work for you anymore. This is helpful as some employees commit payroll fraud through adding fake employees to your payroll, so it’s important to keep an eye out for that.

A great way of checking this is through comparing your payroll list to your data list of current staff and removing any extra employees. 

Analysing your data

When conducting a payroll audit you’ll need to analyse your payroll data. Things you should look at analysing include:

●       Making sure employees are paid correctly

●       Checking pay rates are up-to-date and match employee records

●       Making sure employees worked the hours they say they did

Double checking time is being labelled correctly

It’s important to check whether recorded time is being labelled correctly within the payroll system. For example, logged time off needs to be verified by type, such as sick leave, maternity or paternity leave and holiday.

These need to be differentiated as pay rates can differ depending on the reason for leave/time off.

Compare your payroll records

A great way to see if there are any issues within your payroll is by comparing your payroll records with your business’ general ledger. If these records don’t match then there could be discrepancies within your payroll.

You can also compare your payroll records with your bank statements to see if these match up as well.

Check that employees tax and deductions are correct

Ensuring employees have been taxed correctly and have had the right deductions made will help you understand whether you have been paying your staff correctly and if your payroll records and actions are accurate.

To discover more about payroll deductions read our blog.

If you’re looking to simplify your payroll processes to ensure employees’ are paid correctly and you stay compliant to payroll regulations, our payroll software at Payescape could be perfect for you!

Get in touch with Payescape today to see how our payroll could work for you.

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