What does a payroll audit check?

That everyone paid is a real, current employee, that pay matches approved salaries and inputs, that deductions and statutory contributions are correct, and that payments were filed and deposited on time.

How often should a payroll audit be done?

A light review each month before release, with a fuller audit once or twice a year or on any change of payroll provider or system.

What are common payroll audit findings?

Leavers still on the payroll, PF or ESI computed on the wrong wage base, missed arrears, LOP not applied, and differences between the payroll register and the bank file.

What records does a payroll audit need?

The salary master and revision letters, attendance and leave records, the payroll register, bank transfer files, statutory challans and returns, and approvals for one-off payments.

HR & payroll glossary

Payroll audit

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Definition

A check of payroll output against its inputs and the law: that every person paid exists and is active, that attendance and leave were applied correctly, and that PF, ESI, PT and TDS were computed and remitted on time. It is done periodically or before year-end, and reconciliation of totals is its core.

In practice

A payroll audit is usually done quarterly or before year-end, by someone who did not run the payroll. The auditor samples employees and traces each figure from the offer letter and attendance record through to the bank transfer and the statutory challans.

Typical checks: employees paid after their exit date, the same bank account under two employee IDs, PF computed on the wrong base, and TDS that does not match the latest declarations. Each exception is logged with the corrective entry and the month it will be fixed in.

The mistake is treating the audit as a reconciliation of totals only. Totals can match while some employees are overpaid and others underpaid. Sample at employee level and keep the working papers, because the same evidence is useful in an inspection or a statutory audit.

Treated in depthPayroll Reconciliation: Bank, Ledger and Statutory Returns

FAQs

Payroll audit: common questions

That everyone paid is a real, current employee, that pay matches approved salaries and inputs, that deductions and statutory contributions are correct, and that payments were filed and deposited on time.
A light review each month before release, with a fuller audit once or twice a year or on any change of payroll provider or system.
Leavers still on the payroll, PF or ESI computed on the wrong wage base, missed arrears, LOP not applied, and differences between the payroll register and the bank file.
The salary master and revision letters, attendance and leave records, the payroll register, bank transfer files, statutory challans and returns, and approvals for one-off payments.

HR & Payroll Glossary

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Definition

In practice