Conducting a payroll audit requires access to the proper employment records and payroll documents. Before proceeding to undertake a payroll audit, ensure that you not only have the required documents, but also the resources and information necessary to calculate taxes and other important figures. Use a payroll audit checklist, such as the following, to verify that you have everything in order prior to the audit.
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The Journal of Accountancy specifies that you should ensure that you have immediate access to quarterly payroll reports in order to conduct the audit. Without these records auditing the payroll may be impossible.
Tax Records and Calculation
Copies of forms 940 and 941 that you or your employer has filed with the Internal Revenue Service (IRS) are also necessary to audit a payroll. Form 940 records federal unemployment tax act (FUTA) taxes that you or your employer have paid. Form 941 records federal taxes and Federal Insurance Contribution Act (FICA) taxes paid to the federal government. This form includes quarterly income tax withheld, additional unemployment compensation benefits, as well as sick pay payments. Form 941 also lists employer and employee Medicare and social security taxes. The Journal of Accounting's checklist also asks: "Do you have a system for computing federal withholding and FICA taxes?" If not, you should acquire or develop one before proceeding with your audit.
If you or your employer employ immigrant or naturalised workers, you should have I-9 forms that record their employment eligibility. Are these forms easily accessible? If not, make sure to acquire them before the audit.
Worker's Compensation Records
Do you maintain records of funds withheld for employee 401(k) compensation plans? Or other employee retirement plans? The information such records list should be on hand for a payroll audit. Updated records on funds paid for current worker's compensation payments are also necessary.
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