A payroll audit, also known as a compliance audit, is an analysis of an organization’s payroll-related processes. It identifies compliance problems concerning employment laws, verifies tax withholdings, spots human errors, and prevents payroll fraud, to name a few. Thus, it is vital to frequently do a payroll audit.
A key objective of auditing the payroll is to ascertain the existence of the actual payments and whether the payments were to genuine employees of the company, which is achieved by determining whether there are proper controls over the payroll function.
A payroll audit can occur for many reasons: someone from the government comes calling because you may have done something wrong; an employee makes a claim of unfair pay practices, or; you simply decide to review your own procedures, either internally or by using and independent third party such as an accountant
Conducting a Payroll audit regularly can help you:
- Prevent payroll fraud by weeding out ghost employees or mismarked timecards
- Catch manual errors made when entering numbers into a system
- Spot calculation mistakes if doing payroll by hand
- Realize you need to factor in a raise
- Remove terminated employees from your payroll
- Verify your tax withholdings are accurate
- Accurately account for paid or unpaid time off
- Compare hours paid to when employees clocked in
- Ensure you are compliant with employment laws (e.g., overtime pay)