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Payroll Audit

Payroll Audit: Process & Checklist

The payroll process is arguably one of the most critical responsibilities of any business owner or manager. There is often room for human error in data entry. For example, the payroll department might forget to input a pay increase for an employee or leave a terminated employee on the system. 

The most effective way to avoid potential payroll problems is to conduct a payroll audit. 

What Does a Payroll Audit Process Look Like? 

A payroll audit is a way to examine your payroll service to ensure your payroll data is accurate. It examines your active employees, employee pay rates, salaries and wages, payroll tax, as well as PAYG withholding.

Conducting a payroll audit is a task you should do on an annual basis. It's an internal process that you carry out to catch, repair, and prevent errors. It's a good step to take in ensuring compliance. It can also help you avoid an external payroll audit down the line. But in the event that you are externally audited, you will be well-prepared. Following the audit, you should examine the report and put changes into effect. 

Internal Payroll Process 

Employee database

Review all of the employees you have listed in your payroll account. If you have more listed in your account than you do working for you, there's an issue. It could be a case of a terminated employee lingering on your system. Alternatively, there could be ghost employees on your system. A ghost employee is a fake employee that someone adds to your payroll with the purpose of committing payroll fraud. 

Check your numbers

Payroll is all about numbers, so you can't complete an audit without analysing your numbers. Part of the payroll audit procedures is to check pay rate, pay period, hours worked, and tax withholding. Check pay rate by employee to ensure it's accurate. 

Verify time

For paid time off – you need to verify whether it is tracked correctly and if it was deducted from their remaining leave. 

Reconcile the discrepancies

Where you find discrepancies be sure to examine the records carefully to uncover the problem. Compare your records to the general ledger. The general ledger's payroll expenses should align with the findings of your audit. You will also need to reconcile the records with bank statements. 

Confirm report accuracy

You will also need to verify tax accuracy. Are you withholding the correct amount from each of your employees? 

Internal Payroll Audit Checklist 

If you are ready to start your payroll audit, you can use this payroll audit checklist in Australia. 

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Payroll audit checklist

Audit period


Issue identified?

Start date

End date




Time & attendance


Run reports

Verify employee data

Employee list complete

Employee pay rate accurate?

Classifications correct?

Verify payroll data

Are the payroll runs on time?

Are payments made on time?

Are pay periods accurate?

Are you familiar with your obligations with respect to...

Awards that apply to any of your employees?

The employee standards that apply to your employees?

The National Employment Standards?

Minimum Conditions of Employment Act?

Requests re: flexible working arrangements?

Redundancy pay?

Leave entitlements

Do you maintain records of leave entitlements?

Do you have a clear process in place for employees to request...

Annual leave?

Bereavement leave?

Community service leave?

Parental leave?

Sick Leave?

Long service leave?

Unpaid leave?

Pay and conditions

How are your employees paid?

On which day?

By which payment method?

Do your payslips contain...

Company Australian Business Number (ABN) and company trading name

Employee's full name

Date of payment

Pay period

Gross pay

Net pay

Number of hours worked and paid at the ordinary rate

Number of hours worked and paid at the overtime rate

Deduction details

Do you detail the amount sent to their superannuation and the name of the fund?

Do you issue a payslip within one day of payday?


Do you maintain written or digital employee records? Do they cover the below?

Employee name

Employee status (permanent or temporary, full-time or part-time)

Employer name and legal trading name

Start date

Number of hours worked

Overtime hours worked

Rate of pay

Written agreements surrounding salary agreements, guarantees, and flexible working arrangements.

Gross pay, net pay

Deduction details

Leave accrued, leave taken

Monetary allowances

Superannuation information

Termination details

QuickBooks Payroll Software

While a cloud payroll software has an important role to play in ensuring your employees are paid accurately and on time, it can do so much more for your business. It can keep track of pay rates, handle payroll expenses, tax withholdings, deductions, and superannuation and ensure you are legally compliant. 

QuickBooks Payroll powered by Employment Hero will do the maths so that you don't have to. It will ensure legal compliance, is compatible with Single Touch Payroll and makes payday efficient. 

Depending on the package you choose, you can manage your team with timesheets and rostering. Your employees can use the self-service portal to apply for holidays, check their schedules, and access their payslips as well. 

Book a free onboarding session to ensure you know how to get the most from your payroll system.

Learn more about Payroll tax with our guides to Payroll tax

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