The Ultimate

Payroll Audit
Checklist
Your master cheatsheet to conducting
an internal payroll audit

Version 1.0
Published Sept 2021
CONTENTS

Introduction 3

What Do Payroll Audits Entail? 4

Benefits of a Payroll Audit for Your Payroll Processes 5

How To Conduct a Payroll Audit: a Payroll Audit Checklist 6

How Payroll Automation Can Improve Payroll Compliance 9

Auditing Payroll: Key Takeaways 10

(02) 4062 8705 sales@paycat.com.au

2
There’s no question that Fair Work has taken a strict approach to companies
that fail to meet compliance obligations and continue to under-compensate their
employees.

They have no problem naming and shaming companies that have breached
their payroll compliance regulations. Take Woolworths, for example. They were
recently exposed for major underpayments of salaried managers.

And they’re not alone. There are a myriad of companies that continue to
(intentionally and unintentionally) violate payroll compliance, including cafes,
hairdressers and disability services providers.

The Fair Work website has a long list of media releases that are specifically aimed
at naming and shaming employers who fail to meet their employer obligations
and comply with payroll legislation.

So, how do you know you’re 100% compliant?

Well, the first place to start is a payroll audit.

The Fair Work Commission has found that wage theft (or wage underpayments)
is a direct result of failing to conduct annual audits to ensure that their staff,
including annualised staff, are being compensated correctly.

Australia has one of the most complex workplace laws in the world. So, there’s
no doubt that interpretation of the jargon-heavy Modern Awards has become a
tricky, time-consuming task for many employers.

Suppose you’re feeling concerned that you may not have interpreted your
industry’s Modern Award correctly, or you just want to make sure you’re not in
breach of your obligations. In that case, you may want to consider undertaking a
payroll audit before the Fair Work Ombudsman comes knocking on your door.

(02) 4062 8705 sales@paycat.com.au

3
 What Do Payroll Audits Entail?
Pre-emptive payroll audit procedures generally involve assessing and analysing
your payroll process. The payroll audit typically includes:

• a review of the Modern Award or Enterprise Agreement applicable to your

industry,
• an assessment of the relevant pay rates, penalty rates and overtime rates,
• a calculation of each employer’s current wages and superannuation
contributions to verify that they conform with payroll regulations,
• a review of your payroll tax obligations,
• remedying any payroll discrepancies and non-compliance during the
payroll audit, and
• identifying long-term payroll solutions to avoid payroll inefficiencies and
compliance issues in the future.

If you are currently manually

interpreting your Modern Award pay
conditions, you may want to consider
engaging the services of a
third-party organisation that
specialises in conducting payroll audits.

Suppose the Fair Work Ombudsman

has already approached your
organisation, and you have entered
into an agreement for an Enforceable
Undertaking. In that case, the
agreement likely mandates regular
payroll audits by a third party.

(02) 4062 8705 sales@paycat.com.au

4
 Benefits of a Payroll Audit for Your
Payroll Processes
There are three significant benefits of conducting an annual payroll audit:

• Maintain compliance: if you’re constantly checking your records

and making sure that you are paying your employees according to the
appropriate pay conditions, you won’t have anything to worry about when
Fair Work knocks on your door.

• Reconciliation: an audit allows you to identify any unknown non-compliance

issues and allows you to remedy them.

• Payroll process review: beyond ensuring compliance and remedying non-

compliance issues, a payroll audit helps you identify any inefficiencies in your
payroll process.

(02) 4062 8705 sales@paycat.com.au

5
 How To Conduct a Payroll Audit:
A Payroll Audit Checklist
There are several crucial steps you need to follow to conduct an efficient payroll
audit. Consider the following steps as your payroll audit checklist.

Step 1:
Identify and Review Applicable
Pay Conditions
Before diving into your employee records, it’ll help to have a foundational
understanding of the applicable Modern Award, or Enterprise Agreement is:

• Are you aware of which Modern Award covers and applies to your
employees?

• Are you aware of the National Employment Standards (NES)?

• Do you have processes in place for employees to apply for their leave
entitlements in terms of the NES? And do you maintain accurate records of
employee leave entitlements?

• Do you understand your obligations in terms of these regulations?

• Have the pay conditions changed since your last audit? Typically Fair Work
updates the wages, penalty rates and applicable allowances at the beginning
of each financial year.

• Do you provide your employees with payslips

If you answered no to any of the above questions, you’d need to do some

homework before proceeding to the next step.

Interpreting the Modern Awards can get quite complex. So Pay Cat has drafted
several eBooks for various Modern Awards that aim to simplify the interpretation
process.

(02) 4062 8705 sales@paycat.com.au

6
 Step 2:
Compare Current Pay Rates and Time
and Attendance Records
Now that you know which Modern Award is applicable, you can compare your
current pay rates in relation to the updated pay conditions and your employee’s
time and attendance records:

• Are you paying your employees according to the suggested minimum

employee pay rates proposed in the Modern Award?

• Do your wage payments align with your employee time and attendance
records?

• Have you considered pay point progression?

• Have you considered the applicable penalty rates and overtime rates?

• Have you taken into account each allowance that your employees may be
entitled to? If you’re unfamiliar with employee allowances, make sure to check
out our allowance database tool, where you can access every allowance
applicable to every Modern Award.

This step of the payroll audit is especially important for annualised salary staff.
One of the most significant concerns was that some employers did not ensure
that the annual salary was high enough to cover all the entitlements and that
their annualised salary arrangement was placing employees at a disadvantage.

The new annualised salary changes introduce various processes that employers
must follow to ensure that their annualised salary arrangement doesn’t
disadvantage their employees.

Make sure to check out our annualised salary guide on how to navigate
these changes.

(02) 4062 8705 sales@paycat.com.au

7
 Step 3:
Review Your Payroll Tax and
Superannuation Obligations
There is a common misconception that payroll compliance simply involves
making sure that you are paying your staff enough for each pay run.

However, payroll compliance goes beyond that and includes meeting your
payroll tax obligations and performing all your superannuation contributions.

We recommend working closely with your accountant or payroll manager to

ensure that you haven’t failed to register for payroll tax.

For more information, make sure to check out our guide to payroll taxes, where
we break down everything you need to know about your tax obligations.

(02) 4062 8705 sales@paycat.com.au

8
 Step 4:
Review and Organise All
Your Payroll Records
Many business owners don’t realise that they are required to keep time and
attendance and pay records of employees for a minimum of seven years,
including:

• Payslips

• Employment agreements

• Rosters

• Timesheets

If your business is subject to payroll auditing, these records must be readily

accessible to a Fair Work Inspector.

So, during the audit process, make sure that you have all your records organised
and easily accessible.

(02) 4062 8705 sales@paycat.com.au

9
 Step 5:
Payroll Reconciliation
If during the payroll audit, you identified discrepancies in your reporting
obligations and your pay runs, it’s important to remedy them immediately to
prevent further non-compliance.

This may involve:

• running a comparison of what your current pay cycle looks like and what it
should look like,

• Back paying your employees,

• updating your payroll records and payroll policies to comply with the current
pay conditions and pay requirements, and

• re-organising your records.

(02) 4062 8705 sales@paycat.com.au

10
 How Payroll Automation Can Improve
Payroll Compliance
The combination of Modern Awards
and the NES is a minefield for
employers to navigate. Beyond the
dangers of managing pay conditions
manually, there are significant
inefficiencies that occur with manual
payroll activities.

Take the payroll audit process, for

example. Without all your information
stored in a centralised system, you’ll
have to leverage several resources
and staff to complete the process. And
even then, there is no guarantee that
you’ll be 100% compliant at the end of
your payroll audit.

Implementing an automated cloud payroll system will not only guarantee

accuracy in the application of Modern Awards and NES conditions but also
create a far more streamlined method of processing payroll to improve efficiency
and workforce management.

Additionally, to further streamline your payroll and rostering process, Pay

Cat strongly recommends using an integrated cloud payroll and time and
attendance software, which can help mitigate labour budget blowouts and
manage attendance in real-time.

(02) 4062 8705 sales@paycat.com.au

11
 Auditing Payroll: Key Takeaways

As the Fair Work Commission continues to

renew its focus on ensuring employers comply
with minimum employment conditions and
entitlements combined with a more informed
workforce, businesses are extremely vulnerable
to regulatory breaches and subsequent
penalties.

In our experience, we often encounter businesses navigating these complex

payroll conditions using manual payroll processing and a “hope” strategy that
they might pass with flying colours in the event of an audit.

But that is not enough to guarantee compliance.

By adopting automated cloud payroll software in conjunction with time and

attendance software, you can mitigate any non-compliance risk factors of paper
timesheets and improve the productivity of the entire business' payroll process.

Pay Cat are payroll professionals and leading experts in Australian payroll
compliance. As experts in payroll solutions, we have had decades of experience
helping Australian businesses shift from inefficient payroll processes to a more
streamlined digital cloud solution.

(02) 4062 8705 sales@paycat.com.au

12
Here’s how cloud payroll works:

• NoahFace Time and Attendance

Employees clock their time using the NoahFace Time and Attendance system
that syncs all data with your cloud payroll software.
• Live Timesheet Approval
No more manual entries or paper timesheet approvals. Supervisors and
managers approve time and attendance on the go directly on the cloud
payroll software.
• Automated Modern Awards Compliance
A collection of “rules” based on Modern Awards are implemented into your
cloud payroll software that automatically calculates pay conditions (penalties,
allowances, shift work, and more).
• Automated Payslips
Payslips are automatically generated that comply with the Modern Awards.

If you’re interested in moving from

a manual payroll system to an
automated cloud payroll system,
get in touch with us today for a
free demo.

(02) 4062 8705 sales@paycat.com.au

13
 Payroll Audit Checklist

Pay Conditions

Are you aware of which Modern Award covers and

applies to your employees?

Yes - no further action is required

No - identify which Modern Award applies to your industry

Are you aware of the National Employment Standards (NES)?

Yes - no further action is required

No - familiarise yourself with the 11 minimum National

Employment Standards

Do you have processes in place for employees to apply for their leave
entitlements in terms of the NES?

Yes - no further action is required

No - design an efficient process that will allow employees to submit leave

applications

Do you understand your obligations in terms of these regulations?

Yes - no further action is required

No - seek assistance from a payroll expert if you’re unsure of your

compliance obligations

(02) 4062 8705 sales@paycat.com.au

14
 Have the pay conditions changed since your last audit?

Yes - typically Fair Work updates the wages, penalty rates and applicable
allowances at the beginning of each financial year, so make sure you’re
paying according to the updated rates

No - no further action is required

Do you provide your employees with payslips?

Yes - no further action is required

No - you need to provide your employees with payslips each pay run

Time and Attendance Records

Are you paying your employees according to the suggested minimum

employee pay rates proposed in the Modern Award?

Yes - no further action is required

No - make sure to keep up to date with Fair Work’s minimum pay rates
each financial year

Do your wage payments align with your employee time and attendance
records?

Yes - no further action is required

No - you’ll need to ensure that you are paying your employees according
to their timesheets. If you haven’t been compensating them according
to their time and attendance records, analyse what amounts are
outstanding and immediately back pay your staff.

(02) 4062 8705 sales@paycat.com.au

15
 Have you considered pay point progression?

Yes - no further action is required

No - if your industry’s Modern Award calls for a pay point progression,

ensure that your staff are progressing according to the progression
regulations.

Have you considered the applicable penalty rates and overtime rates?

Yes - no further action is required

No - your staff must receive the applicable overtime and penalty rates if
their timesheet indicates overtime or weekend work.

Have you taken into account each allowance that your employees may be
entitled to?

Yes - no further action is required

No - if you’re unfamiliar with employee allowances, make sure to check

out our allowance database tool, where you can access every allowance
applicable to every Modern Award.

Payroll Tax Obligations

Have you met all your payroll tax obligations?

Yes - no further action is required

No - recommend working closely with your accountant or payroll manager

to ensure that you haven’t failed to register for payroll tax or meet your
obligations.

(02) 4062 8705 sales@paycat.com.au

16
Payroll Records

Are your time and attendance records for the last seven years organised and
easily accessible?

Yes - no further action is required

No - make sure that you have all your records organised and easily
accessible for a Fair Work Inspector

Payroll Reconciliation

Have you identified discrepancies in your reporting obligations and

your pay runs?

Yes - no further action is required

No - it’s important to remedy them immediately to prevent further non-

compliance.

(02) 4062 8705 sales@paycat.com.au

17