Is your business in need of a payroll audit?

The Fair Work Ombudsman (FWO) has recovered more than $532 million in back-paid wages and entitlements for 384,805 employees in 2021-22. This is three times higher than the recovery in 2020-21 and more than four times higher than that of 2019-20. With this in mind, business owners need to be aware of the serious consequences for not complying with employment laws and payroll regulations, particularly with the FWO having a proactive stance on taking enforcement action against businesses that fail to pay employees correctly.

What is a payroll audit?

Although the word ‘audit’ can sound scary, a payroll audit is simply an internal check on the payroll system and accuracy of the data. It helps to ensure employees are paid correctly and that all deductions and reporting are correct. A payroll audit can help to catch mistakes sooner rather than later, avoiding risk of underpayment of wages any subsequent ramifications for the business.

Depending on the size of the business and the extent of the payroll audit, the process can take anywhere from an hour to a few weeks. Payroll will be the first stop when it comes to conducting the audit but it’s just as important to connect with HR as there can sometimes be errors between what HR or a manager communicates to an employee and the information that ends up in the payroll system.

Why should I conduct a payroll audit in my business?

The main outcome when conducting a payroll audit is ensuring accuracy. Employees want to be paid correctly, have taxes withheld properly, and all deductions legal and accurate. The main payroll audit objectives are:

Complying with employment laws and other regulations – Did all employees who were entitled to overtime or penalty rates receive it? What about other entitlements such as breaks or allowances? Are any court-ordered garnishments applied correctly? Are all deductions accurate?

Providing accurate data to employees – Have employees been provided with accurate pay records including hours worked, overtime paid, and details of any deductions? Are pay records accurate for tax purposes?

Uncovering potential errors and inaccuracies – Are there any instances of payroll fraud? Are any terminated employees still receiving wages? Is the workforce made up of different types of workers (full-time, part-time, casual etc) that work a variety of hours? Was an extra zero accidentally added to an employee’s pay check?

Conducting a payroll audit is a vital part of self-governance when running a business because mistakes and human error do occur, as demonstrated by some of the largest organisations in Australia in recent times. Not paying employees correctly can result in hefty fines and penalties for businesses and individuals found to have not complied with the law; and with Modern Awards complex and often difficult to interpret, it’s important to nip any potential payroll issues in the bud sooner rather than later.

Protect your business from exposure to underpayment of wages and any potential legal proceedings from the FWO. Get in touch with our team for an obligation free chat now on how we can support your business in conducting a payroll audit.

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