Payroll is a crucial component of the payroll process. Following the best payroll practices entails having an effective payroll process and performing regular payroll audits to ensure that process is done as it should. The best time to schedule a payroll audit is at the end of each quarter of the business. Companies with fewer employees have an advantage because they can do it anytime.

Payroll audit allows managers to keep track of the total number of employees in their company, and maintains accurate payroll records as per the company’s compliance policies.  It is equally important to have a procedure which should be followed during the auditing process.

Below are some tips for conducting an effective payroll audit:

  • Verify the pay rates: Ensure that the pay rate indicated on the system is correct for each employee. Be sure it is in writing and approved by the respective manager.
  • Compare pay rates to time and attendance reports: Payroll audit ensures that employees are paid according to the time and attendance records. Pay attention to overtime hours, off days, sick leave, and vacation days to ensure that you have classified each employee correctly to calculate overtime pay accurately.
  • Verify contractors and vendors contract status: For companies that use vendors and independent contractors, it is important to check the state of the contracts including the pay period. This will ensure you pay for the services you are using.
  • Verify payment for active employees: Ensure everyone who received a paycheck previously actually worked for those periods to avoid incidences of paying ghost workers.
  • Assess bank reconciliation for payroll account: Make a comparison of the bank account with the internal ledger to ensure balances are correct and all checks cleared.
  • Check tax submission for payroll: Ensure that you submit the right amount of tax in compliance with the state rule. You can do this by comparing tax remittance report against your payroll reports.


In a nutshell conducting payroll audit, keeps you in control of your organization financial management. Some tips to help in payroll audit include verifying pay rates, reviewing of contractors and vendors contract status, verifying payments for active employees, validating bank reconciliation and reviewing payroll tax submission.