What is a Payroll Audit? Advice From a Payroll Specialist

Auditing your payroll is an important task that involves an in-depth review of your payroll data and your current processes. It is designed to catch any errors before they become problematic, helping to ensure compliance and improve efficiency.

Most businesses now use specialist software to manage their payroll. Although this speeds up the auditing process, it doesn’t remove the need for it. Software is only as good as the data you feed it, so it’s important to review your methods and data regularly.

Who conducts a payroll audit?

Most payroll audits are done internally, either by you or your chosen payroll partner. However, HMRC can carry out a payroll audit on your business to check you are compliant. That’s one of the reasons why it’s important to maintain strong payroll processes and accuracy throughout the year by conducting internal reviews. Put simply, you must stay ready so you don’t have to get ready.

How often should I have my payroll audited?

Your payroll should be audited at least once during every financial year. Depending on the size and scale of your business and its rate of growth, we can recommend as many as two to four internal audits per year for the most accurate and efficient process.

How to prepare for a payroll audit

The best way to achieve a clear, objective audit is to work with a payroll provider who specialises in managing and reviewing payroll for businesses of all shapes and sizes. This is particularly true for small businesses with small finance and HR teams that might lack the capacity to conduct a thorough analysis.

If you opt for this method, your only tasks will be to schedule a suitable date for the audit to take place and gather the required documentation that your payroll partner needs, such as up-to-date payslips, payroll registers, tax records and employee contracts.

If you choose to conduct the audit yourself, you can use the below checklist to help you work through the audit step-by-step.

• Employee Data: Ensure that all employee information including names, addresses, National Insurance Numbers and tax codes is accurate and up-to-date.
• Tax Compliance: Check that you have been withholding the correct amount of income tax and National Insurance Contributions (NICs) from employees’ salaries.
• Benefits and Allowances: Ensure that any benefits, allowances or expenses provided to employees have been reported correctly and are in compliance with tax regulations.
• Pension Contributions: If your company provides a workplace pension scheme, ensure that contributions are being calculated accurately and paid on time.
• Employee Contracts: Review employee contracts to ensure that they accurately reflect employment terms and conditions.
• National Minimum Wage Laws: Ensure that you are paying all employees at least the national minimum wage as per current legislation.
• Review Past Audits: If this isn’t your first audit, review the findings and recommendations from any previous ones and ensure that any issues identified have been resolved.
• Payroll Software: Verify that your payroll software is up-to-date and compliant with current tax rules and regulations.

Is auditing included when you outsource payroll?

If you have opted for full-service payroll management with a payroll specialist, payroll auditing will usually be included in your package. Most good payroll providers are happy to create a bespoke package of services that suit your business, so if auditing isn’t something you currently receive, you’ll likely be able to add this to your agreement.

Do you need more help with payroll?

At Finesse Resources, we offer a more in-depth version of a payroll audit called a Payroll Quality Assurance Service. This is a detailed appraisal of every aspect of your payroll system, highlighting areas that require improvement as well as areas that are running smoothly. Once complete, we then provide you and your finance team with actionable advice to iron out any issues that were identified so that every aspect of your payroll is compliant, competent and competitive.

If you’re a UK-based business looking for answers to your payroll questions, visit www.finesseresources.co.uk for more advice or to get in touch with one of our CIPP-accredited experts.