Payroll Audit Procedures
To ensure that the payroll process is accurate, the payroll should be scrutinized thoroughly.It must be cross-checked and analyzed to make sure that the final figures are correct. This process of thoroughly scrutinizing the payroll records is called the payroll audit.
Payroll management includes a lot of records, data, and paperwork and therefore, the generation of accurate payroll records requires a lot of effort by the payroll team.
Also, the team needs to pay special attention to the business laws because payroll and tax rules keep fluctuating and the payroll team needs to be up to date with the new rules.
If these rules are ignored, then you might end up paying huge penalties. There are a lot of other parameters as well to consider while conducting payroll audit.
Here, I have listed six effective payroll audit tips to increase your payroll accuracy.
Verify your List of Active Employees
If your company has contract employees from other vendors, then you should categorize the employees properly.
The salary structure for contract employees and permanent employees is usually different. Therefore, proper segregation of these employees will avoid mistakes in payroll.
Every company has new employees joining and old employees moving out every month.
This situation will lead to a lot of confusion if you do not have all the records of your employees. Therefore, the HR team should update the list of active employees very carefully.
Sometimes without proper scrutiny, the former employees will still be listed as active and might get paid. Hence, the list of active employees should be verified frequently to make sure they get paid correctly.
Review Pay Rates
Reviewing the pay rates is one of the very important steps in the payroll audit. You could have processed the payroll and you might have finalized the pay rates.
But we suggest that you review each employee’s pay rates to check if it is correct and updated. The pay rates should match exactly with the employee records.
Pay rates might vary based on promotion, deduction, or bonus, etc. So, you must calculate the pay rates correctly by considering all these factors.
Validate the total working hours of each employee and make sure that the employees’ records match. Pay special emphasis on reviewing pay rates as it might save you from the wrong calculations and wrong payments.
Verify Employees’ Time and Attendance
Employees can take off to go on vacation or they might get sick. If the employees have taken paid time off, then the leaves must be categorized properly, and the leave should be deducted from the employee’s account.
If an employee has taken unpaid leave i.e. loss of Pay (LOP) leave, then the day’s pay must be deducted from the employee’s salary.
Employee’s exact working hours must be recorded for further requirements. Some employees might be hired based on an hourly basis. If you have exact records of these employees, then there won’t be any confusion during payroll processing.
Recording the employee’s exact working hours will make it easy to calculate the payment for additional hours. If you use a leave software, you can check all of these details easily from the ready reports available inside these tools.
Cross-check Payroll Tax Withholdings
It is advised to cross-check the payroll tax multiple times, if possible. We all know that the payroll taxes are not the same throughout the years and the government might come up with new tax laws very often.
The payroll team should be up to date with these tax laws and taxes should be paid according to the new rules.
Cross-check the gross salary and tax withholding of each employee. If there are any ambiguous numbers in the tax deduction, scrutinize such accounts carefully. Otherwise, even the minor mistakes in the tax calculations will lead to penalties.
Analyze Deductions and Reports
Every employee’s salary deductions must be calculated correctly. The salary deduction can be based on unpaid leaves, employee benefits, etc.
The company might even have to pay for employee reimbursement and additional working hours. All such deductions and addition must be calculated and included in the payroll.
Check the payroll report with the gross salary, tax withholdings, deduction, etc. Make sure that all the numbers match exactly. Compare the data you have and match it with the final payroll report.
Validate the Final Numbers
This might be the final step in the payroll audit. Once you have run the payroll and scrutinized thoroughly, then you must cross verify the payroll with data and reports you have. Go through the bank deduction and check if the final numbers match.
A payroll audit is conducted to make sure that the payroll process is perfect. It increases the accuracy and you do not have to worry about any penalties.
We all know how difficult it is to prepare a perfect payroll, but by following the proper payroll audit methods, you can make the whole process foolproof.