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A payroll audit checks whether payroll records are complete, employee pay is calculated correctly, tax reporting matches payroll, and payroll entries reach the accounting records. For a useful review, define the period and workers in scope, gather source records, reconcile totals, test individual pay, document exceptions, and track corrections to completion.
This checklist focuses on U.S. federal guidance. State and local wage, tax, and recordkeeping rules may add requirements, so check the rules for every jurisdiction where employees work.
How to run a payroll audit
- Define the scope. Write down the audit period, entities or locations, employee groups, payroll systems, and reason for the review. If records flow through multiple providers or systems, include each relevant flow.
- Gather and inventory records. Collect payroll registers and summaries; employee and pay-rate records; time records and schedules; records supporting additions to and deductions from wages; tax filings and payment records; and general-ledger or cash-disbursement records. List records that are missing or unavailable. The Department of Labor’s 2024 field-audit appendix calls for identifying source records examined and documenting evidence for audit conclusions.
- Check the payroll system and population. Trace payroll posting into the accounting records and confirm that the audit population includes the workers and payments it is supposed to cover. Where appropriate to the scope, examine contract labor, cash disbursements, and other records that could reveal unreported workers or wages.
- Reconcile totals. Tie total payroll to total wages, then compare taxable payroll with the relevant tax records and source documents. Explain reconciling items. A balanced total does not establish that each employee was paid correctly.
- Test individual pay. For covered, nonexempt employees, compare time and pay records with hours, pay basis, regular rate, straight-time earnings, overtime earnings, additions and deductions, total wages, pay date, and pay period. Select a sample or focus on higher-risk records, and recalculate amounts from source hours and applicable pay terms.
- Investigate and document exceptions. For each difference, record its source, calculation, amount, affected employee or employees and period, explanation, reviewer, and resolution. Keep the evidence supporting the finding.
- Correct and follow through. Make approved payroll or process corrections, address any required filings and payments, and record who authorized each change. If the review identifies a potential minimum-wage or overtime violation, the Department of Labor’s PAID program page describes a process that includes identifying affected employees and periods and estimating back wages. Check that page for current availability and procedures. It says payment before Wage and Hour Division review does not itself waive an employee’s right to pursue a private lawsuit.
Payroll audit checklist: records and tests
Use this list to organize the audit file and show how each result was supported.
- Employee and job details: Check identity and relevant job information, including name, address, occupation, and workweek start where applicable.
- Hours and time records: Compare hours worked each day and total hours in each workweek with payroll entries; investigate unexplained differences.
- Pay calculations: Check pay basis, regular rate, straight-time earnings, and overtime earnings against source hours and applicable pay terms.
- Adjustments and payment: Trace additions and deductions to supporting records; verify total wages by pay period, payment date, and covered pay period.
- Tax reconciliation: Reconcile total payroll to total wages and taxable payroll to the corresponding tax records, retaining the explanation for reconciling items.
- Accounting trail: Confirm payroll posting to the accounting system and retain evidence that the population and source records are complete.
- Other disbursements: When relevant to the audit scope, review contract labor, cash disbursements, and other records for possible unreported workers or wages.
The Department of Labor’s Fact Sheet #21 summarizes the FLSA records employers must keep for covered workers. It says there is no required form for those records and that the information must be accurate. It also states, “Any timekeeping plan is acceptable as long as it is complete and accurate.” The IRS likewise says a business may choose a recordkeeping system suited to its needs, provided it keeps records that support its tax reporting. An audit therefore evaluates whether the records are complete, accurate, and traceable; it does not require a particular checklist product, software package, or physical time clock.
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How to reconcile payroll to the general ledger
- Start with the payroll register or payroll summary for the defined period and confirm which entities, locations, and employee groups it covers.
- Trace payroll postings to the corresponding accounting records and cash disbursements. Note timing differences, account mapping, or other reconciling items rather than forcing totals to match without explanation.
- Compare total payroll with total wages, then reconcile taxable payroll against the relevant tax records and source documents.
- Keep a reconciliation trail showing the amounts compared, supporting records, each difference and its explanation, and the reviewer’s conclusion.
The Department of Labor’s field-audit appendix specifically includes verifying the payroll posting system, reconciling total payroll to total wages, computing total taxable payroll, and reconciling taxable payroll. These total-level checks complement, but do not replace, employee-level pay tests.
How long to keep payroll records
Federal guidance sets different periods for different record categories; these are not one universal retention period.
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1 Pcs Weekly Payroll Record Book 8.5x11 Inch Spiral Binder 52 Weeks 106 Pages Employee Payroll Log Daily Time Sheet Log for Small Business Accounting Office Home Use (1)
- Payroll Record Book for Small Busines：This payroll record book is designed for small business owners contractors and offices to easily track employee payroll information helping simplify bookkeeping and payroll management
- Weekly and Daily Time Sheet Log Book for One Year：Designed as a weekly payroll record book and daily time sheet log book it tracks weekly hours pay rates taxes and deductions for up to 52 weeks providing full year employee payroll and time tracking in one book
- Large 8.5 x 11 Inches with 106 Pages：The payroll record book measures 8.5 x 11 inches with 106 pages offering ample space for detailed payroll records employee time tracking and work hours logs without overcrowding
- Tracks Payroll for Up to 20 Employees：This employee payroll record book and work hours log allows recording payroll data for up to 20 employees with clear columns making it suitable as an employee time tracking book for small teams
- Eye Friendly Design with Durable Spiral Binding：Blue green inner pages reduce eye strain during long bookkeeping sessions while the horizontal spiral bound design and laminated cover ensure durability and easy flat writing for daily payroll and time sheet logging
| Record category | Federal guidance | Source and qualification |
|---|---|---|
| FLSA payroll records, collective bargaining agreements, and sales and purchase records | At least three years | U.S. Department of Labor, Fact Sheet #21, revised July 2008 |
| Records used to compute wages, such as time cards, piecework tickets, wage-rate tables, work and time schedules, and records of additions to or deductions from wages | Two years | U.S. Department of Labor, Fact Sheet #21, revised July 2008 |
| Employment tax records | At least four years | Internal Revenue Service, Recordkeeping; publication date not shown |
Before destroying a record, identify its category and check applicable federal, state, local, contractual, and litigation-preservation requirements. The federal summaries above do not establish state-specific retention periods.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What to include in the audit file
Keep a clear record of the review so another person can trace each conclusion back to its evidence. A practical file includes:
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1 PCS Payroll Record Book Payroll Ledger Logbook Weekly Employee Payroll Log Book 7.2X4.2 Inch Receipt Book 2-Ply Carbonless 50 Pages Wire-O for Small Business (1)
- 1. Efficient double-copy paper:The inner pages of payroll record book are made of carbonless white and yellow double-copy paper, which is clear and does not require additional carbon paper, saving costs. The white copy is used for archiving, and the yellow copy is used for checking or distribution, which is convenient for employees to check and manage wages. The tear line design on the top makes it easy to tear neatly, which is convenient for file sorting and filing. The torn documents can be directly used for salary verification or employee distribution, which is convenient for subsequent file sorting and filing, and improves work efficiency.
- 2. Portable size and professional design:The 4.2x7.2-inch size design not only ensures sufficient recording space, but also facilitates detailed recording of salary details, such as employee name, salary items (basic salary, bonus, subsidy, etc.), amount and other information, and is easy to carry. The weekly employee payroll log book can be easily put into a folder or handbag, which is convenient for financial personnel to check and record salary information anytime and anywhere. It is suitable for use in offices, out-of-office or mobile office scenarios.
- 3. High-quality binding and durability:White spiral binding can be completely flat, smooth writing, easy to flip through, suitable for frequent use. 50 double-copied inner pages create clear records for employees and management to meet daily wage record needs and can record the wage details of 50 employees.
- 4. Single-sided color printed inner pages:The inner pages are printed in color on one side, which is beautiful and practical. Different wage items or important information are distinguished by color to track employees' working hours, total income, deductions and net wages, and improve the clarity and readability of records. The payroll ledger book’s inner pages are made of high-quality paper, with smooth writing and clear carbon copies to ensure the accuracy and completeness of wage records.
- 5. Applicable to multiple scenarios:This set of weekly payroll record book is suitable for corporate finance departments, human resources departments, small businesses or individual businesses, and can provide efficient support for wage accounting, employee communication or salary surveys. Simple and easy to use, no professional training required, it is a powerful assistant for wage management, helping you to easily manage wage records and improve work efficiency.
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4 Pcs Daily Time Sheet Log Book 120 Pages 6x9 Inch Spiral Binder Work Hours Log Book Payroll Record Book Attendance Book Daily Journal Weekly Time Sheet Book for Small Business Office (4, 6 x 9 Inch)
- Accurate Time Tracking：This time sheet log book includes 120 pages in a large 6 x 9 inches format offering ample space to record daily work details such as time in time out and total hours making it a practical work hours log book for professional use
- Simplified Payroll Management：Use this payroll record book to support accurate wage calculation and monthly summaries improving efficiency for payroll processing and record keeping
- Durable Office Design：Spiral binding allows the book to lay flat while thick paper reduces ink bleed making it a reliable attendance book for daily business operations
- Professional Employee Records：Designed as an employee sign in and out book this log book helps maintain clear and organized attendance records for employees contractors and teams
- Versatile Daily Use：Functions as a daily log book for work suitable for offices job sites warehouses schools and small businesses needing consistent time tracking
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GLDTPOZK 2 Pcs Weekly Time Sheet Log Book 120 Pages 8.5x11 Inch Spiral Binder Work Hours Log Book Payroll Record Book Attendance Book Daily Journal for Small Business Office (2, 6 x 9 Inch)
- Accurate Weekly Time Tracking：This time sheet log book features a two weeks per page layout across 120 pages double sided providing long term use while clearly recording daily work hours breaks overtime and total hours on a large 6 x 9 inches page for easy writing and review
- Professional Work Hours Organization：As a practical work hours log book each page includes date time in end out breaks overtime total hours and notes providing a clear and structured way to manage daily work schedules and labor records
- Employee Sign In and Out Management：This employee sign in and out book is ideal for tracking attendance punctuality and work duration supporting smooth workforce management for offices job sites warehouses and service teams
- Reliable Payroll Record Keeping：Use this payroll record book to maintain consistent and organized records for payroll processing invoicing and compliance helping reduce errors and save administrative time
- Durable Attendance Book Design：This attendance book features spiral binding thick paper and a laminated cover ensuring easy page turning and long term use making it a dependable daily log book for work environments
- Scope, period, locations, systems, employee groups, and reason for the audit.
- An inventory of records examined and records unavailable.
- Payroll-to-wage, taxable-payroll, and accounting reconciliations with explanations for differences.
- Employee-level tests, calculations, and supporting records.
- An exception log identifying affected people and periods, amounts, causes, reviewer, and resolution.
- Evidence of approved corrections and follow-up on filings or payments.
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