The 3 Key Criteria for Choosing Your Payroll Auditor

Lambert, who offers payroll training as “The Payroll Advisor,”says that you can’t give payroll auditing over to just anyone who’s free.  There are three points that are critical for choosing the auditor. 

1. Not the Person Who Does the Job

First, says Lambert, you want someone other than the one who does the job to do the audit. The person in the job doesn’t have much incentive to find mistakes. And, of course, you won’t uncover any fraud if you don’t use someone outside.

In addition, one of the objectives of the audit is to catch bad habits, that is, things that employees do thinking that they are the right thing to do when actually they are counter to law or policy. You won’t find those bad habits if the person in the job does the audit, says Lambert.

2. Know Rules and Regs

Second, the person conducting the audit should know all the laws, rules, and regulations concerning the topic being audited.

That means you’re going to have to thoroughly train the person doing each individual segment of the audit, says Lambert. Put the rules and regs in writing and include both federal and state regulations. This should not be done from memory but from primary sources such as the DOL/IRS website. 

Secondary sources (such as payroll manuals) can also be used if the source is comprehensive including source cites. You can compile this information prior to each audit segment or you can prepare the entire audit book prior to starting the audit.

Don’t forget to include the company policy for each topic, says Lambert. Many times the federal or state requirements are exceeded by company policy. And, of course, employees can sue if company policy is not followed even if the federal and state requirements are, so the policies should be included in the audit as well. 

If you don’t have a policy or if have an outdated policy, you need to write one or update the existing one, says Lambert.

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3. Create an Audit Plan

Third, says Lambert, it’s important to set forth a comprehensive list of all payroll tasks to be audited. This list should be in writing, and completed prior to beginning the audit.  This gives a “playlist” of the tasks to be accomplished and helps with assembling the law book discussed above. It also assists in compiling the time frame and work schedule for the audit.  And it helps to insure that no one “forgets” a segment of the audit.

Finally, says Lambert, there is an added bonus of doing the audit—it’s a great opportunity for cross-training.

Payroll audits—important, of course, but just one of, what, a dozen wage/hour challenges on your desk? Joint employers, off-duty phone use, overtime, and a host of other picky other issues—wage and hour just won’t be as simple as we want it to be.

Let’s face it, comp’s never a picnic, and complying with the Fair Labor Standards Act (FLSA) is one of the most confusing and challenging things comp managers have to do.

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