A payroll compliance audit is most useful before a problem appears. Rather than checking one pay run, it tests whether the business has the right employee setup, payroll rules, evidence, reconciliations and review controls to produce reliable results repeatedly.
This TNS Accounting checklist is designed for Melbourne and Epping SMEs that want a practical internal payroll health check.
What employee setup should be reviewed in a payroll compliance audit?
Check employee identity data, employment basis, tax settings, super details, award or agreement coverage, classification, pay rate, standard hours, leave setup and bank details. Focus on new starters and employees whose roles or rates changed during the year.
How should award rates and payroll rules be tested?
Sample employees across different classifications and compare actual payroll calculations with the applicable award or agreement. Test overtime, penalties, allowances, casual loading and leave. Use current Fair Work pay guides where relevant.
How should STP Phase 2 be reviewed during an audit?
Check employment basis, income types, payment classifications, rejected submissions, corrections and year-to-date totals. Reconcile STP figures to payroll records rather than relying only on a successful lodgement status.
How should Payday Super compliance be tested?
Review qualifying-earnings setup, calculated super, payment timing, fund receipt status, rejected contributions and the super-payable account. Read the Payday Super 7-day guide for timing controls.
How should payslips and payroll records be checked?
Confirm payslips are issued within the required timeframe and contain required information. Test whether the business can retrieve seven years of required time and wage records. The records and payslip guide provides a practical checklist.
How should payroll reconciliations be tested?
Review net wages to bank, PAYG withholding, super payable, payroll clearing accounts and year-to-date totals. Ask whether differences are investigated and documented each month.
How should a payroll audit prioritise the highest-risk employees and pay codes?
Start with employees who changed roles or rates, casual and shift-based workers, employees with regular overtime, terminations, new starters and anyone paid through unusual allowances or bonuses. Then identify payroll codes used frequently or configured manually. This risk-based approach can reveal recurring issues faster than checking employees in alphabetical order.
For each sample, trace the transaction from approved source data through the payroll calculation, payslip, STP reporting, bank payment and accounting entry.
How should payroll audit findings be ranked and corrected?
Separate findings into immediate compliance risks, financial-reporting issues, documentation gaps and process-improvement opportunities. Quantify the possible impact and identify whether the issue affects one person or a wider population. Recurring configuration problems should normally receive higher priority than isolated administrative mistakes.
What should happen after a payroll compliance audit is finished?
Create an action register with an owner, deadline and evidence required for closure. Update payroll procedures, code mappings or approval controls where necessary. Then schedule a follow-up test rather than assuming the issue is solved because a policy was rewritten. Effective remediation changes the live payroll process and can be demonstrated in a later pay run.
How should a payroll compliance audit test Payday Super and cash flow together?
Review whether super contributions are calculated correctly, processed in time and cleared from the super-payable account. Then assess whether the business has enough cash-flow visibility to fund those payments every pay cycle. A technically correct payroll process can still fail if management is surprised by the timing of super outflows.
How should audit findings be communicated to business owners?
Summarise issues in plain language: what is wrong, who may be affected, the potential financial or compliance impact, what evidence supports the finding and what action is recommended. Separate urgent corrections from lower-priority process improvements so management can respond in the right order.
Which payroll changes should trigger an extra compliance review?
Major payroll software migrations, rapid hiring, new awards, business acquisitions, new locations, changed pay frequencies and repeated payroll errors are all useful triggers. These events can change employee classifications, mappings, payroll tax exposure and approval workflows. A targeted review soon after the change is usually more effective than waiting for the annual audit.
How should payroll audit evidence be stored?
Keep the reports tested, sample selections, findings, management responses and proof of remediation together in a controlled folder. This creates a clear trail for later review and helps the business show that identified issues were not only discussed but actually corrected.
Why should audit actions have deadlines?
Without a named owner and due date, payroll findings can remain open across multiple pay cycles and allow the same error to continue. Track remediation until evidence shows the control is working.
What questions do businesses ask about payroll compliance audits?
How often should payroll be audited?
Risk-based reviews can be done periodically and after major changes such as software migration or rapid hiring.
Should every employee be checked?
High-risk areas may require full review; otherwise use representative samples plus exception testing.
What is the first audit priority?
Recurring setup errors, because they can affect many pay periods and employees.
Should award classifications be documented?
Yes. Keep evidence supporting coverage and classification decisions.
Should rejected STP events be reviewed?
Yes. Confirm they were corrected and did not create year-to-date errors.
Should super receipt be tested?
Yes. Review both calculation and actual contribution processing.
How many years of payroll records should be accessible?
Fair Work generally requires seven years for specified employee records.
Should terminated employees be sampled?
Yes. Final pay is a high-risk payroll event.
Should payroll access permissions be reviewed?
Yes. Sensitive payroll data and payment functions should have appropriate access controls.
Can TNS Accounting perform a payroll process review?
TNS Accounting can review payroll workflows, reconciliations and accounting controls for Melbourne businesses.
What if the audit finds an underpayment?
Quantify the issue, determine affected periods and employees, obtain appropriate advice and correct the process.
Should payroll tax be included?
For Victorian employers near relevant wage thresholds, payroll tax exposure should be reviewed.
Should software integrations be tested?
Yes. Check whether payroll journals and payment data transfer completely and accurately.
What evidence should the audit retain?
Keep testing notes, reports, exceptions, corrections and management actions.
What should I read next?
Read the month-end payroll reconciliation guide.
For ongoing payroll support, visit TNS Accounting Payroll Services and the complete payroll guide.
2 Responses