In the latest Australian Payroll Association survey, respondents were asked when they last conducted a payroll audit. The results were surprising; less than 50% of respondents had conducted an audit for payroll and compliance in the last 12 months, and just under 20% had never completed an audit.
Are you confident your organisation's payroll and wage compliance is accurate?
Payroll is an important compliance challenge for companies because of the complex Australian industrial relations system and other contributing factors. Non-performance and underpayment may cause significant financial losses, reputation damage, employee loss of faith and remedial work for an organisation.
What’s a payroll audit?
A payroll audit checks that payroll is accurate. Auditing of payroll examines the payroll process, pay rates against Modern awards, wages, and tax withholdings. It’s important to conduct an audit every year to ensure your business is compliant. Generally, audits are conducted in-house, but regulators may also audit payroll. An internal audit can identify problems and prevent external audits. Once an audit has been completed, you should create a payroll audit report, make any changes to payroll processing that have been highlighted and adjust any miscalculations of employees’ pay.
A full audit is essential for employers to ‘get ahead' of any compliance issues before they become lengthy and costly legal disputes or a Fair Work Ombudsman investigation.
What's included in a payroll audit?
To comply with Australian workplace laws and avoid under or over-payments, employers must comply with the applicable industrial instrument and the Fair Work Act, including meeting record-keeping requirements and regulations. Some risk areas that can easily cause under, or over-payments are base rates, leave accrual, superannuation, penalty rates, allowances and paying employees a salary that doesn't cover the relevant Award minimum entitlements.
Auditing of payroll examines several compliance elements of an employer's payroll process, including:
- Employee payroll records, such as timesheets, pay slips and tax forms, to ensure accuracy and compliance.
- Time and attendance compliance.
- Tax compliance.
- Employee classification - employee or contractor.
- Benefit deductions, such as health insurance premiums or retirement contributions, are accurate.
- Record-keeping compliance with Fair Work requirements.
As different legislation applies to different industries, a payroll audit's scope and procedures differ from company to company. Audits promote fairness, accuracy, and employment and tax laws adherence.
Compare current Pay Rates and Time and Attendance Records
Payroll audits are especially important for annualised payroll staff. One major worry is that some employers do not provide a salary that covers the full entitlements or that an annualised salary arrangement misplaces the employees' benefits. A change in annualised salary arrangements requires employers to follow several processes to protect themselves.
Review and Organise all your Payroll Records
Do you know how long you must keep employee time and attendance records? Employers must keep time and wages records for 7 years and be readily available to a Fair Work Inspector (FWI), legible, in English. They cannot be changed unless correcting an error and cannot be false or misleading. As part of your payroll audit, ensure your record keeping is compliant.
Review your Payroll Tax and Superannuation Obligations
Compliance with payroll is not just paying employees the correct amount at the right time. It includes payment of payroll taxes and processing of all contributions for superannuation.
What are the risks of neglecting annual payroll audits?
Every day, another company is reported to underpay its employees. Recently these big brands, BHP, Coles and Woolworths, and Flight Centre have been in the news and apologised to their employees as they have underpaid them.
These big brands have suffered reputational damage and have had to admit to underpayment publicly or have been caught underpaying employees - known as 'wage theft'. They have all had to pay hefty fines for non-compliance.
Payroll errors and inaccuracies are more likely and more difficult to reconcile the longer they accumulate. Also, payroll fraud or embezzlement may go undetected for longer than necessary, and a loss of trust and credibility with employees, stakeholders, and regulators are all risks you take without a regular payroll audit.
How to conduct a payroll audit? Tips & Best Practices.
The payroll audit process ensures compliance, accuracy, and efficiency - the process should be conducted at least once a year to ensure accuracy and compliance; review your payroll systems and processes.
By following these tips and best practices, you can enhance the effectiveness of your annual payroll audit and ensure payroll compliance.
- Stay current on employer obligations, payroll regulations and compliance updates.
- Review key areas: payroll systems, time and attendance records, tax payments, and financial ledgers.
- During the payroll audit, evaluate the effectiveness of your payroll processes, procedures, and internal controls. Including payroll data entry, calculation of wages and deductions, time and attendance recording and payroll software functionality.
- Review employee classifications.
- Verify compliance with minimum wage laws, overtime rules, and other wage-related regulations.
- Check payroll taxes are correctly calculated and withheld, including employment taxes, and federal, state, and local income tax obligations.
- Validate benefit deductions for accuracy.
- Reconcile payroll data with financial reports. Review discrepancies or inconsistencies and investigate the causes.
- Document findings and recommendations, including any non-compliance issues, errors, and areas for improvement.
- Hire an expert if you are not confident in conducting a payroll audit in-house. Payroll consulting
Every business is different, and you should create a payroll audit checklist to cover every audit requirement for your business.
Payroll Audit Resources
What makes payroll audits difficult?
In Australia, payroll regulations are constantly changing and difficult to navigate, which makes ensuring compliance challenging. Keeping abreast of modern awards, penalty rates, leave entitlements, single-touch payroll, and tax reporting is time-consuming and often hard to navigate.
In a recent article, we uncovered Why compliance reporting is challenging with separate applications. Many companies use multi-applications to manage their workforce, making payroll compliance complex and auditing time-consuming.
It is possible to mitigate non-compliance risks associated with disparate workforce management solutions by implementing automated compliance software and cloud payroll systems with in-built workforce management, including time and attendance, rostering and scheduling, work restrictions, and compliance.
You can eliminate compliance risk with Access Definitiv - the true all-in-one solution with one record for each employee from hire to retirement. With all your payroll data in one place, payroll compliance auditing is easy and faster - compliance is always front-and-centre, not a mammoth task.
Separate Applications vs All-in-One Platform - which one is right for you? Download the eBook to help you decide.
Need to see Access Definitiv in action - watch the 4-minute Demo.
The Access Group is a trusted payroll product and service provider with over 35 years of experience delivering accurate, compliant, and timely pay runs every pay cycle. We have software solutions and services that support any business structure, industry and pay condition.