Here’s the scenario: You’re running payroll across multiple countries — different currencies, tax systems, and labor laws are all in play. Everything seems to be running swimmingly. Until one day, an employee flags a missing bonus payment — and then you spot a tax miscalculation in another country.
Suddenly, the cracks in what seemed like a flawless payroll process start to show. And the one thing that could’ve prevented this — a payroll audit — is the one thing you haven’t done.
It’s a stressful situation — one that can lead to compliance issues, financial penalties, and unhappy employees. But, with a thorough audit, you can catch these issues before they proliferate. Here we take a closer look at how to run a payroll audit for global teams with tips from the experts.
What is a payroll audit?
Payroll audits are important safeguards for your company’s financial well-being and legal compliance — not to mention employee satisfaction levels.
Essentially, they’re systematic reviews of your global payroll management processes to ensure accurate record-keeping, proper pay distribution, and compliance with labor laws.
Payroll audits aim to verify that employees are being paid correctly and on time, taxes are being withheld accurately, and payroll records align with financial statements. You’re also looking to identify any instances of payroll fraud, employee misclassification, and unresolved discrepancies that could lead to financial or legal penalties.
Not all audits are the same. Internal and external payroll audits serve different purposes, are performed by different parties, and have different scopes of review. Let’s look at what sets them apart.
What are internal payroll audits?
Internal payroll audits are conducted by your company’s in-house finance, HR, or audit teams and serve to identify payroll inconsistencies. They’re an important part of any payroll strategy, providing a proactive approach to compliance, as they’re usually more frequent and focus on day-to-day compliance and accuracy, including checking employee records, tax withholdings, overtime pay, and benefits.
They help you assess your internal processes, identify compliance gaps, and correct them before they become costly problems.
What are external payroll audits?
External payroll audits are performed by independent third-party auditors and are often performed for regulatory compliance, financial reporting, or legal purposes. They aim to provide an objective, unbiased review of your payroll processes and can dive deeper into your payroll policies, tax filings, and adherence to labor laws. They can also identify risks or inefficiencies your internal team might miss.
What is a global payroll audit?
Payroll audits for global teams provide a more comprehensive review of payroll processes across the various countries where a company employs staff. When dealing with distributed workforces, payroll audits become significantly more complex, since there are different currencies, tax systems, benefits structures, labor laws, and employee classifications to take account of.
A global payroll audit also aims to ensure that each region’s payroll aligns with both local regulations and the company’s global standards.
Why are payroll audits so important?
Global payroll has so many moving parts. It’s not just about making sure employees get paid on time; you need to make sure that the data that informs those payments — like tax withholdings, benefits, and employee classifications — is accurate and compliant with local laws.
Of course, with so many variables at play, payroll is vulnerable to errors. However, these errors can have huge consequences. As Lettink explains, “If you make a mistake, that happens. But if you make the same mistake several times, that can end up in the newspaper.”
Payroll audits should form an intrinsic part of your operations, to help you:
- Prevent errors that could lead to legal action or financial penalties.
- Maintain compliance with labor laws, including minimum wage, tax regulations, overtime pay, and employee classification.
- Identify and address payroll process inefficiencies.
- Protect the business against payroll fraud (including ghost employees and unauthorized pay rate changes).
- Foster employer-employee trust with accurate and timely payments.
- Improve financial forecasting by ensuring payroll aligns with budgets.
- Reduce the cost of global payroll.
How to audit payroll
A well-executed payroll audit isn’t just a best practice — it acts as a safety net that protects you against compliance issues, financial penalties, and the breakdown of employee trust.
Establishing a clear payroll audit checklist and process ensures you cover every detail. Ready to get started? Here’s how to run a payroll audit step by step.
1. Review all employee information
Accurate employee data is the foundation of a smooth payroll process and helps you avoid making underpayments, overpayments, and incorrect tax withholdings. As you verify employee records, ask yourself these key questions:
- Are my employees’ pay rates accurate and up-to-date?
- Are my employees correctly categorized as full-time, part-time, contractors, or freelancers?
- Are any employees who have left the company still appearing on payroll?
- Have new employees been properly onboarded to payroll? Have we captured all of their details?
- Are job titles, employee classifications, and personal details correct?
- Are there any missing employee documents that need to be completed or updated?
2. Validate pay, hours, and overtime
Crunching numbers is what payroll teams do best. But are your numbers accurate? Here’s exactly which numbers you need to check:
- Pay rates: Make sure employee wages reflect any salary increases, role changes, or changes in employment status (e.g. shifting from an hourly to a salaried role).
- Hours worked: Cross-check reported hours against employee schedules and vacation time to pinpoint any discrepancies.
- Total pay: Verify total pay equals the product of wages and hours worked.
- Overtime compliance: Check that employees have been properly compensated for any overtime worked.
3. Verify tax withholdings and deductions
Ensure you’re applying the correct taxes, social security contributions, and mandatory withholdings in line with the local laws of every country where you have employees.
You’ll also need to make sure that you’re up-to-date on relevant regulations; these change often and so even if you were compliant last year, that may not be the case today.
Pro-tip: Use a global payroll platform to stay up to date on changes to local laws automatically.
4. Review payroll cycles and variable payments
Off-cycle payments such as bonuses or commissions often differ from one country to another. Plus, when paying employees in different countries, you might find there are extra pay cycles you need to account for due to different pay frequencies in different countries.
You should also cross-check payroll reports against your general ledger to reveal any inconsistencies, Confirm that total payroll expenses, withheld taxes, and net payments match your financial records.
5. Document and report your audit findings
The final step is turning your audit findings into action. Start by thoroughly documenting every finding — from data discrepancies to compliance issues — and outlining clear, actionable next steps and timelines.
Present the key issues, recommendations, and expected impacts to relevant stakeholders. You should also have a plan in place that enables you to track progress, measure results, and adjust payroll management processes as necessary.
Payroll audit best practices
Well-executed payroll audits don’t just happen — they’re built on best practices that help you stay organized, consistent, and compliant.
1. Define the scope and goals of your payroll audits
You’ll need to decide how often you want to run a payroll audit, and it’s important that these audits are not a one-and-done exercise. In fact, Ian Giles, Global Payroll & People Leader at Multiplier, suggests a much more proactive approach. He says, “Look at an element of payroll every quarter. If you leave it six months, you leave yourself open to disaster. The more you look, the easier it is when it comes to audits.”
2. Standardize your audit procedures
Consistency is key to effective payroll audits. Once you develop a standardized process that your team can follow every time (outline steps, responsibilities, and documentation requirements), you’ll be able to track issues and progress easily.
3. Create an audit trail
A strong audit trail provides transparency and accountability and ultimately fuels compliance. Track all transactional, tax, account, payroll, and system changes, as well as timestamps and authorizations to maintain accurate records and make it easier to resolve issues quickly.
4. Train teams on compliance in payroll
Payroll is not a one-man band. Keeping your payroll team up to date on changing regulations is essential for maintaining compliance. Provide regular training on local labor laws, tax requirements, and best practices. You could even create a payroll compliance checklist for your team to ensure nothing slips through the cracks.
Payroll audit challenges (& solutions)
Payroll audits often reveal more than individual payroll mistakes — they expose patterns of errors and inconsistencies. Let’s explore some of the most common payroll audit challenges and how to fix them.
Navigating complex compliance requirements across multiple countries
Navigating compliance across multiple countries means managing different labor laws, tax regulations, and reporting standards — and they’re constantly changing. What’s legal and compliant in one country may be a violation in another, making consistent payroll processes for global teams a challenge — and no one team can be expected to be an expert in every region’s payroll requirements.
Centralizing data through a global payroll platform is one of the most effective ways to manage this complexity. These systems have compliance built into the platform with insights from local experts and automated updates.
As Natalie Lloyd, Global Customer Success Manager at JGA Recruitment Group, says, “There’s no longer a need for an individual who knows the ins and outs of labor laws in several regions – the global payroll platforms can do this.”
Ensuring data security and privacy
Payroll data contains sensitive employee information, and breaches can lead to identity theft, legal liability, and loss of employee trust.
A strong payroll solution helps safeguard this data by not only strengthening internal controls — like approval chains, access limits, and change monitoring — but also by keeping you compliant with regulations like GDPR.
Global payroll platforms identify the steps you need to take to comply with GDPR and other regulations and enable you to set detailed custom controls with smart permissions, restricting decision-making options and ensuring sensitive data stays private. This helps keep your payroll secure, accurate, and aligned with changing requirements.
Integrating disparate systems
For many organizations, payroll data comes from multiple sources such as HR systems, time and attendance tracking, and benefits administration platforms. If these systems are not integrated, you can experience inconsistencies, delays, and manual errors.
By choosing an integration-first approach, with a strong payroll platform at the center, you can enable real-time data flow. Learn more about the rise of integration-first software in our payroll trends guide.
Take control of global payroll audits with Multiplier
Payroll audits should not be a source of stress. In fact, you should be so confident in your processes that audits are just routine check-ins that confirm everything is running as it should be.
With Multiplier’s powerful automation and compliance features, you can ensure accuracy, security, and consistency in every region, all from one centralized system.
Here’s what else Multiplier can do to help simplify your audit processes:
- Integrates with HR, invoicing, and expense management tools for flawless data sharing.
- Initiates audit trails to help you maintain accurate records.
- Allows you to review region-specific compliances for watertight adherence to local labor and tax laws.
- Provides built-in fraud protection by flagging unusual activity before it becomes an issue.
- Generates locally compliant contracts for new employees.
