5 Tips Conducting An Effective Payroll Audit
23 Nov 2021
Payroll has always been a crucial component of the payroll process. In addition to ensuring that employees’ wages are calculated accurately and disbursed on time to employees, best payroll practices within the company includes performing detailed and accurate payroll audits.Conducting regular payroll audits allow payroll managers to keep track of the numbers that are going in and out of the company – similar to that of the role of an accountant. It also allows the payroll department to maintain accurate payroll records that are in line with compliance policies. At the same time, regular payroll audits allow the payroll department to spot any potential mistakes or issues that might have been missed out previously. It is also a good time for companies to relook at their payroll processes and identify areas whereby processes can be enhanced to improve productivity.
If this is the first time your company is conducting a payroll audit or looking for ways to improve your payroll audit process, here are some tips to conducting an effective payroll audit for your company.
Verify Pay Rates
The first and most important thing to check for during a payroll audit is that the pay rates listed in your company’s existing payroll system is correct for each employee. This means verifying each individual employee’s base salary, overtime rates, tax deductions etc. Promotions, bonuses and salary increases occur throughout the year as well. Therefore, it is imperative to ensure that the figures are accurate for each employee for each specific pay period.
Cross check pay rates against attendance records
While checking for accurate overtime pay rates, it is also crucial to cross check pay rates against attendance records. For instance, an employee who worked only the full eight working hours should not be compensated based on the overtime rates. Additionally, it is important to check overtime hours, sick leave and vacation days against each employee’s attendance record. This is to ensure that employees are not being over or under compensated for their work done.
Ensure pay for active employees
Attrition can occur any time during the year. In some cases, certain employees may remain in the company even after their official resignation date due to handover matters or clearance of work. Therefore, it is important to check that everyone who received their pay check for each payroll period actually worked during that pay month.
Check status of independent contractors and external vendors
If your company engages independent contractors or external vendors for certain services such as tax filing or recruitment, you will need to ascertain the contract validity period. After all, you do not want to be paying for services that you are not utilizing or be shortchanged on external services that the company should be entitled to. Additionally, this is a good time for the company to evaluate the relationship with the external vendors to decide if there is a need to renew these vendors’ contracts for the next year.
Reconcile bank records against company’s payroll accounts
The last thing that you want is for the company’s funds to be credited to and debited from the wrong bank account. Verify that your company’s bank account tallies with internal ledgers and ensure that any changes to the company’s name or bank accounts are reflected both internally and with the various banks as well.
There are numerous measures that can help to ensure an effective payroll audit within the company. Additionally, regular payroll audits are imperative to ensuring that payroll processes are aligned with compliance policies. Concurrently, it helps with the company’s financial management in the long run as well.
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