Payroll audits are systematic reviews of a company’s payroll records, ensuring accuracy, compliance, and efficiency. A well-executed audit helps businesses identify payroll errors, verify employee payments, and meet legal obligations.
Why is this important? Even minor payroll errors—such as incorrect tax withholding, misclassified employees, or unpaid superannuation—can result in legal penalties, employee dissatisfaction, and financial losses. Non-compliance with Australian payroll regulations may trigger audits by Fair Work Australia, the Australian Taxation Office (ATO), and state/territory authorities, leading to fines and reputational damage.
Regular payroll audits are crucial for businesses to stay compliant with Australian payroll regulations. A proactive approach helps identify and correct errors before they lead to penalties or disputes. Here’s why payroll audits should be a key part of your compliance strategy:
Errors in superannuation, tax withholding, and wage payments can result in hefty fines from the ATO and Fair Work Ombudsman. Businesses that fail to meet their payroll obligations may also face legal action, back payments, and reputational damage.
Payroll audits help detect:
Underpayments – Ensuring employees receive correct wages and entitlements.
Overpayments – Preventing unnecessary financial losses for the business.
Incorrect deductions – Avoiding non-compliant salary deductions or tax miscalculations.
Payroll mistakes—such as missing superannuation payments or miscalculated leave—can lead to employee dissatisfaction, complaints, and even workplace disputes. A reliable payroll process fosters transparency, fairness, and employee confidence.
Payroll audits verify that:
PAYG withholding is correctly calculated and reported.
Superannuation contributions (minimum 11% in 2024) are paid on time to the correct fund.
Leave entitlements align with Fair Work requirements for annual, personal, and long service leave.
A thorough payroll audit ensures that your business remains compliant with Fair Work Australia, ATO regulations, and state/territory laws. When conducting an audit, focus on these critical areas:
Confirm that employees are correctly classified as full-time, part-time, casual, or contractors.
Ensure that pay rates align with modern awards, enterprise agreements, or individual contracts.
Verify that contractors are genuinely independent and not legally classified as employees (to avoid sham contracting risks).
Check that base wages, overtime, and penalty rates comply with minimum wage laws and Fair Work pay scales.
Review timesheets and rosters to confirm that employees are paid correctly for overtime and shift penalties.
Identify any underpayments or overpayments and rectify discrepancies immediately.
Ensure that superannuation contributions (minimum 11% in 2024) are correctly calculated for eligible employees.
Confirm that super payments are made at least quarterly to avoid ATO penalties and interest charges.
Verify that super contributions are deposited into the correct employee funds.
Check that PAYG withholding tax is correctly deducted from employee wages and reported to the ATO via Single Touch Payroll (STP).
Ensure compliance with state and territory payroll tax thresholds and rates, as they vary across Australia.
Review employee leave records to ensure compliance with Fair Work entitlements for:
Confirm that leave balances are accruing correctly and that payouts for unused leave follow Fair Work guidelines.
Follow these step-by-step guidelines to ensure accuracy, compliance, and efficiency in your payroll processes:
Collect payroll reports, tax filings, employee contracts, timesheets, and payslips for the audit period.
Ensure records comply with Fair Work and ATO retention requirements (minimum 5 years).
Check that Tax File Number (TFN) declarations, award classifications, and employment statuses (full-time, part-time, casual, or contractor) are accurate.
Ensure that terminated employees are properly offboarded, with final pays, leave payouts, and superannuation contributions correctly processed.
Compare actual wages with Fair Work minimum wage requirements and enterprise agreements.
Validate that PAYG tax, superannuation contributions, and deductions (e.g., salary sacrifice, union fees, or child support payments) are correctly calculated and applied.
Confirm that annual leave, sick leave, parental leave, and long service leave are accruing correctly per Fair Work guidelines.
Ensure that leave balances match payroll records and that payouts comply with Fair Work rules.
Verify that superannuation contributions (minimum 11% in 2024) are paid on time and to the correct fund.
Check payroll tax thresholds and rates applicable to your state or territory, ensuring accurate reporting and payments.
Document any discrepancies and assess their impact.
Correct errors immediately and update payroll records accordingly.
Communicate necessary adjustments to affected employees, ensuring transparency.
Establish a regular payroll audit schedule (quarterly or biannually).
Automate compliance tracking using payroll software with real-time reporting.
Stay updated on Fair Work and ATO legislative changes to maintain compliance.
To streamline your payroll audits and ensure ongoing compliance, consider leveraging the following tools and resources:
Automate payroll calculations and compliance checks with trusted payroll software such as Xero, MYOB, or KeyPay. These platforms help calculate wages, deductions, tax, and superannuation while also ensuring timely compliance with Fair Work and ATO regulations.
Ensure wage compliance by using the Fair Work Pay Calculator. This tool helps calculate the correct minimum wage for employees based on their classification and location, aligning with the Modern Awards and Enterprise Agreements.
Use the ATO’s Superannuation Guarantee (SG) tool to verify that superannuation contributions are being calculated and paid correctly. It ensures your business meets super requirements—currently 11% in 2024—and helps you stay compliant with ATO regulations.
STP is essential for real-time tax reporting compliance. It helps automate PAYG tax reporting to the ATO and provides an up-to-date view of your business’s payroll, ensuring that employee tax and super contributions are filed correctly.
To ensure your payroll audit is effective and compliant, be mindful of these common mistakes:
Always keep employee records up to date, including contact details, TFN declarations, award classifications, and pay rates. Failing to update these details can result in inaccurate payroll processing and compliance issues.
Modern awards and enterprise agreements are updated regularly. Make sure to stay informed about any changes in classifications or pay rates, as failing to apply the latest updates can lead to underpayments or wage disputes.
Ensure that payroll records are reconciled with actual bank transactions to avoid discrepancies. This helps confirm that all employee payments, deductions, and super contributions have been processed correctly.
Late superannuation payments can incur significant penalties and interest charges from the ATO. Ensure payments are made on time (at least quarterly) and are deposited into the correct superannuation fund.
Conducting regular payroll audits is essential for protecting your business from penalties and ensuring full compliance with Fair Work and ATO regulations. By following a structured audit process, HR managers can:
Identify and rectify payroll errors early, minimizing the risk of compliance violations and costly fines.
Maintain employee trust by ensuring accurate wage payments and correct entitlements.
Stay compliant with constantly evolving payroll laws, ensuring your business adapts to any legislative changes.