Why Should You Carry Out Payroll Audits Regularly?

June 15, 2021

It is important that payroll systems and processes are monitored regularly in any size organisation in order to help with cash flow. Payroll is often one of the largest expenses a business can face when things go wrong, so prevention is always best. In order to avoid payroll errors which can in turn lead to fines and penalties, regular auditing of payroll is essential.

Whether your payroll system is managed internally or is outsourced to an accounting firm, error can always occur (particularly when humans are involved!). Even the most reliable system can easily run into trouble – none of us expected the likes of Amazon and Twitter to be down only last week did we?! By undertaking a regular payroll audit these results are significantly reduced, and it also means from a GDPR point of view that employee information is kept updated too.

What Is A Payroll Audit?

To most people, the term ‘audit’ can seem quite daunting, but if you have the correct processes and procedures in place then it is quite a manageable task. Regular audits should be carried out as a risk mitigation, to ensure that the payrolls produced are compliant with HMRC to prevent penalties or disgruntled employees further down the line.

Whilst a payroll audit is important to help businesses stay compliant, payroll systems should also be regularly audited to ensure nothing is slipping through the cracks. Information is always changing, just like we have seen during the pandemic with the furlough entitlements. If businesses routinely undergo payroll audits then this makes updating things a lot easier. We would advise yearly payroll audits as a minimum – quarterly is preferable.

How To Avoid Payroll Risks

Payroll risks are things that quickly escalate within the business that can not only damage the reputation of a company, but can have financial consequences too. For any business that doesn’t want to end up in either of those situations, it is a good idea to schedule regular audits to ensure information is reliable and accurate.

Here are some of our top tips on how to avoid payroll risks:

  1. Perform payroll walkthroughs

This will instantly help to determine any weaknesses within your current payroll processes. The walkthrough should be carried out retrospectively, going through each employee’s journey throughout the business so far. When they started, how they have progressed, and how their salary has changed accordingly. 

  1. Have one responsible person

When mistakes happen, it is always easy to pass the blame onto someone else. By having a named authority responsible for payroll this also means someone is constantly monitoring things. By being aware of potential issues in a payroll earlier on means that fines and penalties may be avoided, rather than letting the risk escalate. Someone should be comparing payroll expenses to budgets, for example to ensure there is enough money coming into the business to pay the wages. If the gross profit was down for a few months and went unnoticed, this could cause huge financial implications at a later stage.

  1. Plan for mistakes

We are all human, and we do make mistakes. Even machines and software can go wrong sometimes too. These mistakes are usually unintentional, and could simply be caused by a lack of training or experience. By making sure payroll audits are regularly performed, it allows for these mistakes to be detected and corrected at the earliest possible opportunity. If you anticipate mistakes, then these can be adjusted into a compliant payroll.

With a fully managed payroll system like Sage50cloud Payroll, you will dramatically reduce the chance of risks and errors occurring. At Reality Solutions we are Sage business partners and our mission is to improve the efficiency of business processes using the right financial solutions. If you are considering automating your payroll processes or using Sage to help with this, get in touch with our friendly team today who will be happy to assist you.

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