Payroll is one of the most important compliance challenges facing businesses, yet according to a recent payroll survey only 50% of businesses have conducted an audit for payroll in the last 12 months, and just under 20% have never completed an audit.

Considering Australia’s complex industrial relations system, it is little surprise that The Fair Work Ombudsman recovered $509 million in unpaid wages in the 2022-2023 financial year for non-compliance; not to mention the negative impact of reputational damage, employee loss of faith, and remedial work these businesses incurred.

Neglecting regular payroll audits is risky and the longer left, the greater the potential damage to the business. With this in mind, business owners must ensure good governance by conducting at a minimum, annual payroll audits.

What is included in a payroll audit?

To comply with Australian workplace laws and avoid underpayments and overpayments, employers need to abide by the applicable industrial instrument and The Fair Work Act including meeting record keeping requirements and regulations. Auditing of payroll examines several compliance elements of the payroll process including:

  • Employee payroll records
  • Time and attendance
  • Tax
  • Employee classification
  • Benefit deductions
  • Record keeping

Some risk areas to be aware of are base rates, leave accrual, superannuation, penalty rates and allowances. Additionally, different legislation applies to different industries so the scope of the payroll audit and process will differ between businesses.

Annualised payroll employees

Payroll audits are especially important for annualised payroll employees to ensure that the salary covers the full entitlements. In the instance that there are any changes in annualised salary arrangements, employers must follow several processes to minimise any risk.

Review and organise payroll records – Employers must keep time and wages records for 7 years and be readily available to a Fair Work Inspector, be legible, and in English. These records cannot be changed unless correcting an error and cannot be false or misleading.

Payroll tax and superannuation obligations – Compliance with payroll includes the correct payment of payroll taxes and processing of all contributions for superannuation.

Tips and best practice when conducting a payroll audit

The payroll audit provides accuracy and efficiency, and should be conducted at least once a year to ensure compliance. The following tips can help business owners enhance the effectiveness of their payroll audit:

  1. Stay up-to-date with employer obligations, payroll regulations, and current compliance requirements.
  2. Regularly review key areas such as payroll systems, time and attendance records, tax payments, and financial ledgers.
  3. During the payroll audit, evaluate the effectiveness of payroll processes, procedures, and internal controls.
  4. Review employee classifications.
  5. Verify compliance with minimum wage laws, overtime rules, and other wage-related regulations.
  6. Check payroll taxes are correctly calculated and withheld, including employment taxes, and federal, state, and local tax obligations.
  7. Validate benefit deductions for accuracy.
  8. Reconcile payroll data with financial reports, reviewing discrepancies or inconsistencies and investigating the causes.
  9. Document findings and recommendations, including non-compliance issues, errors, and areas for improvement.

Payroll regulations are constantly changing and difficult to navigate. Keeping abreast of modern awards, penalty rates, leave entitlements, single-touch payroll, and tax reporting is time consuming and often hard to navigate.

Have you conducted a payroll audit in the last 12 months? Do you have effective processes in place to ensure payroll compliance? Do you want guidance to minimise the risk of underpayment? Ensure your business is safe, get in touch with our team today for an obligation free chat.

Find our articles helpful? Remember to follow us on Facebook, Instagram or LinkedIn to keep up to date with our practical tips and information for business owners and managers.