Payroll audit checklist 2024: A step-by-step guide

Author: Simon Bradbury, Global Payroll Consultant and CEO at Global HRIS

Last updated: 03/03/2024

Carrying out regular payroll audits in 2023 ensures compliance, prevents fraud and protects your business. As a business, you should perform a payroll audit at least once a year. If your payroll system isn’t transparent, you’re at risk of expensive fines and reputational damage. For instance, you may input numbers incorrectly or forget to add an employee’s pay rise to your records. Help is at hand: below we share a simple payroll audit checklist.

There are three main benefits of regular payroll audits. Firstly, it uncovers errors in your data and allows you to fix them. Also, it deters payroll fraud, so your business remains protected. Most importantly, it keeps your payroll compliant with changing employment laws. Following a payroll audit checklist ensures you check all processes.


How can Global HRIS support your payroll audit in 2024?

Audit-friendly payroll is compliant, accurate and well-organised. A centralised system will reduce the stress of regular audits. Your data is accessible in a single location, which increases its efficiency. If you’re interested in switching to a new payroll system, it must meet all your unique needs. Although, it can be overwhelming to search for a new provider.

We’ll support your new transition every step of the way. We will work with your staff to create a detailed Request for Pricing (RFP), so you find the right provider. Also, we will help you manage your payroll move, migrate your data and test your payroll.

No matter the size of your business, you should perform regular payroll checks. Here we share a simple-to-follow payroll audit checklist.


Payroll audit checklist for 2024:

Review all employee data

Make sure all your active employees currently work for you. This is a key step of the process, both for your HR and payroll departments. There’s less risk of errors when you connect both systems together.

Check that the list of employees on your payroll is the same as your employment records. Make sure you remove those that have left the business from your system. Remember – an employee can leave at any time of the year. Check that everyone who received their pay worked during the correct period. Involve all line managers in this process to verify all active employees are still employed.

f you use payroll software, it shouldn’t take too long. Most payroll solutions have a section that lists every worker on your records. If your business uses any contract workers, you’ll need to confirm they’ve been paid accurately.


Analyse payroll numbers

Now you need to verify your employees’ pay matches the hours worked. This is a crucial step for any hourly-paid employees. Your business should have timesheets for every pay period and all employees. This will help you check the hours you paid employees for are accurate.

Whilst it’s time-consuming, here you can check for any fraudulent alterations or data errors. If you spot any suspicious changes, raise them with your HR team to investigate.


Verify additional payments

 Promotions, bonuses, and salary increases can occur at any time during the year. Employees are counting on this extra pay, so you need to check that everything is accurate. You may have to work with your finance team to verify any additional payments. For example, relocation pay or signing bonuses. All additional payments carry a high risk of potential fraud. So, you must check for errors.

Make sure your system correctly identifies any paid or unpaid time off work. This will check you’ve not overcompensated your employees. During the payroll audit, you will need to check all overtime hours, sick leave, and annual leave against each employee’s record.


Reconcile your payroll

 Payroll reconciliation is the most important step in an audit. It involves comparing your Gross to Net report with the data input you receive during the period to check they match. Check that your business’s bank statements match your payroll records.

This step is crucial for small businesses. Many smaller companies have separate – but integrated – software for payroll, HR, and accounting. Any payroll data will be sent to your accounting software. So, you’ll need to check that all taxable wages are correct.

Payroll reconciliation should happen regularly. Most businesses run reconciliation after payments have been issued. Remember – fixing any errors is harder once everyone has been paid. Instead, it’s best practice to reconcile your data every pay period, at least two days prior to your pay day.


Check taxes

Make sure you withhold the correct amount of taxes from each employee’s wages. Check that all withheld tax amounts match your internal records. Remember: Your year-to-date records must match the figures that have been paid over to the inland revenue.

Your risk of errors and fraud increases when you have a global business. Fortunately, outsourcing your payroll to the right provider often reduces this risk. Changing providers can be complex, so we’ll find the right provider for your business.


Cleanse your data

Data cleansing is a business-critical step, both for your HR and payroll systems. Cleansing and ordering your data can be time-consuming – especially if you have two separate systems. If your HR and payroll systems aren’t yet integrated, you should carry out checks at least every quarter. This should check that both systems are using the same, accurate data.

Data tends to become incorrect, duplicated, and incomplete over time. This can lead to inaccurate payroll, leading to low employee morale. Using the wrong data can even lead to misunderstandings about your organisation’s people and processes. So, cleaning your data should be a huge priority across the business.

We understand that checking your data from different sources can take weeks and even months. That’s why we’re developing new software that will support payroll teams around the globe to clean their data in a fraction of the time. Watch this space!


Improve your payroll

Once you’ve finished your audit, create a report to share with your internal teams. For example, your HR, finance, and payroll departments. Use this report to identify the strengths and weaknesses of your current processes.

Performing regular audits can lead to a more efficient payroll system. If your payroll isn’t yet cloud-based, consider changing your software. A cloud-based system has lots of benefits. For instance, it will automate time-consuming processes and increase security.


We are on hand to support your payroll processes. From testing your payroll to data migration, get in touch today to see how we can support you.

Find out more about how we can help you by calling Global HRIS today on +44 161 317 2903 or get in touch through our website.
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