Excessive manual effort within your payroll process signals the biggest red flag we see during an audit. Modern technology solutions help you complete tasks quickly. If you spend too much time on a particular task, you're likely dealing with an efficiency problem. These issues waste staff time and may signal tax compliance problems to government agencies. Address efficiency concerns proactively.
Beyond flagging inefficiency, three types of payroll audits reveal specific issues.
Payroll procedural audits: Streamlining HR processes
Procedural audits examine whether the appropriate people on your team handle the right jobs. Outdated processes may bog down your organization because your team always handles tasks the same way.
Procedural audits confirm proper separation of duties and adequate checks and balances. For example, does one payroll employee enter new hire information and submit payroll? New hire data input and payroll tasks should be divided between two employees.
No one person should solely submit payroll and check data accuracy. Multiple staff involved in payroll reduces fraud risk. This approach also provides backup coverage if an employee becomes ill, resigns or leaves.
Poor departmental communication also causes discrepancies. For example, HR and finance teams must align. This ensures they understand each other's needs and code employees in the system accurately. Robust internal processes enhance overall HR efficiency.
Payroll system optimization audits: Maximize your HR tech investment
A payroll system optimization audit examines vendor technology use. Organizations that fail to use all features of their technology solution miss opportunities to simplify processes. Sometimes payroll staff focus more on launching a new system than optimizing features such as employee self-service or onboarding tools. As a result, these organizations pay for unused capabilities and endure resulting inefficiency.
Further, automation integrates your system with third parties to streamline payroll processes. However, many organizations still upload data manually. Such manual work incurs lost time and potential errors. For example, if all your employees earned merit increases, using imports creates one workflow. This automation applies the change to all staff. Optimizing your payroll technology boosts productivity for HR leaders and their teams.
Payroll tax audits: Ensuring HR compliance and avoiding penalties
A payroll tax compliance audit identifies inaccuracies in reporting, coding and configuration. This occurs at both organizational and employee levels. When HR staff improperly code remote workers for state and local tax jurisdictions, these errors trigger tax problems.
Incorrect tax configuration for benefit deductions and other taxable fringe benefits creates more issues. For example, staff may set up a pre-tax deduction for a hospital stay and should code that event as a post-tax deduction. Failing to report an employer HSA on a Form W-2 at year-end presents another typical error.
Organizations expanding into new jurisdictions must register for a tax ID number. Securing a registration ID can take days or weeks, depending on how HR staff filed the application and whether it included any errors. If you don't receive the new tax ID number promptly, your vendor can't file taxes for that quarter. Tax ID number delays can result in penalties and interest.
Gallagher can help
A payroll audit moves beyond identifying and addressing problems. Payroll audits proactively assess current processes and can help remediate historical errors.
Gallagher's experienced HR & Organizational Effectiveness consulting team works with organizations across industries and jurisdictions. We stay current on payroll and jurisdictional law changes so you can pay your employees with confidence.
Learn how Gallagher can optimize your payroll and compliance.
