The most important aspect of effective payroll management is regularly auditing the payroll policies and practices. Follow these steps to perform a successful payroll audit and ensure that your payroll procedures are up to date.
What Is a Payroll Audit?
An audit of your Payroll is an organized process you can take to evaluate the payroll process and record. The purpose of an audit is to improve the accuracy of your Payroll Software for your employees and make sure that your payroll procedures are in complete compliance with the law.
It is recommended that you conduct the audit regularly or whenever there are significant changes to your company or its internal processes. For instance, it’s a perfect idea to perform a audit when your business has been through an amalgamation, restructuring, or changed the size and size of its workforce.
Why Should You Conduct a Payroll Audit?
Payroll accuracy is usually the primary reason to conduct a pay audit. According to an upcoming Deloitte research, it’s accuracy is among the top three issues in the Payroll for payroll experts. To address this issue, 81% of them said they review their payroll processes regularly.
The audit can be conducted on your own or with the assistance of a third party. Periodic review of your payroll operations can assist you in:
- Keep track of accuracy and conformity.
- Find and fix mistakes.
- Maintain payroll records in order.
- Improve your financial control.
A straightforward procedure during your payroll audit will ensure that you’re doing everything you can and uncovering areas to improve. Include the following steps while conducting your next payroll audit
Verify rates of payroll
It might seem insignificant to verify employees’ pay rates in the pay system. Still, considering the many changes in the employee’s salary in Time, this is an excellent first step. When employees are promoted or shift into different times or jobs, their pay rates could be altered. If you can verify pay rates, you’ll ensure that you catch any unpaid or overpaid payments before they turn into a longer-term issue.
Pay Rates vs. Attendance Records
A worker’s Fair Labor Standards Act (FLSA) classification determines their eligibility for overtime pay. Therefore your audit must include a review to see if employees are identified correctly as FLSA exempt or not. Also, you’ll need to verify if promoted employees have experienced changes to their eligibility for overtime pay.
If employees are employed for some time, they could switch between full-time and part-time hours. So, to be in the spirit of the Affordable Health Care Act (ACA) obligations, you’ll have to be aware of what employees are considered full-time and able to receive benefits.
It is also important to ensure that there weren’t any underpayments or overpayments to employees on vacation, sick leave, or extended leave. If, for instance, an employee’s pay was not reestablished after returning to work from absences without pay, you’ll need to rectify the issue and pay the missing payments.
Confirm Pay for Active Employees
When you are in the middle of it’s audit, you’ll have to determine if everyone who received a paycheck during the previous pay periods was employed during the pay period. A payroll audit will reveal instances where employees might have been compensated for the Time they weren’t working and can assist in identifying the controls needed to ensure that this doesn’t happen repeatedly.
Utilizing payroll software that integrates with HR systems will allow you to confirm that employees who have been terminated were removed from your payroll system and benefits plan. In addition, integrating with HR systems can allow you to avoid paying the cost of benefits and wages for employees who have transferred to a different employer.
Check Independent Contractor and Vendor Statuses
Although independent contractors aren’t part of your Payroll as employees, they’re a component of your workforce contingent, and their wages should be included when you audit your Payroll. You must ensure that the contractors are correctly classifiable and aren’t considered employees since problems with classification could cause issues for employees and the U.S. Department of Labor. Furthermore, you should ensure that the payments to contractors correspond to their work by the agreed-upon rate.
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Cross-Check Payroll Reports to the General Ledger
Payroll reports should not be read in isolation. In the initial stage of your review, ensure that the sums of your expense, including withheld taxes and net check amount, are all in line with the general ledger accounts. Also, you’ll need to take an additional examine any impressive or unusual figures to make sure that they don’t indicate an error.
Validate Bank Reconciliation for the Payroll Account
The amount of your pay register must match those in your bank statement. Keep track of any discrepancies in dates and amounts, and then investigate to find out the reason.
Review Payroll Tax Submissions
The payroll tax for each month and the quarterly period are often subject to changes in law or changes in the employee’s gross pay. Therefore, check that your audit contains an examination of Its tax to identify any possible issues, like incorrect Social Security, federal, or state unemployment tax.
Maintain a Healthy Payroll Management Process
Its management requires paying close focus on deadlines and compliance requirements while keeping track of changes and deductions in employees’ pay. However, if you take the Time to audit your processes regularly, you will find and correct mistakes and discover areas for improvement and automated processes. For additional tips to help you handle more effectively, look at our Guide to slashing Time in the Payroll.
As we recognize the essentials of the payroll management system, you need to realize how productive it can create for your profession. So, get HR Payroll for your company and see how great the payroll procedure can be!