Payroll Audits: A Practical Checklist for Indian Employers
A payroll audit checks wage records, statutory filings and payments for accuracy. Auditors look first at PF, ESIC, professional tax and TDS calculations, minimum wage compliance, overtime pay, the paperwork trail and whether deposits were on time. Most findings are small mismatches between attendance, leave and the final pay run, so reconcile those before each close.
A payroll audit is a methodical check of wage records, statutory filings and payments to confirm they are accurate and legal. Most companies run one internally every year, and an outside auditor gets involved when a labour department inspection takes place.
What auditors look at first
| Area | What they check | Evidence |
|---|---|---|
| Statutory deductions | PF, ESIC, professional tax and TDS computed on the right wages | Payroll register, challans, returns |
| Minimum wages | Pay against the latest state-notified rates for each category | Wage registers, notifications |
| Overtime and shift pay | Correct rates applied for hours worked | Attendance and overtime records |
| Documents | Appointment letters, attendance and payslips for every employee | Employee files |
| Remittance | PF, ESIC and PT deposited on time | Challans and acknowledgements |
| Exits | Final settlements, gratuity and notice recoveries | Settlement statements |
What usually goes wrong
Most findings are not fraud. They are small mismatches between attendance, leave and the final pay run that build up over months. Typical examples are a wrong professional tax slab, PF calculated on the wrong wage, an ESIC deduction that continued past the ceiling, and a state levy that was never remitted.
How to prepare
- Reconcile monthly. Match headcount, gross pay and net pay to the bank file and the ledger.
- Reconcile statutory dues. Match deductions to challans every month, not at year end.
- Sample employees. Pick ten people across levels and trace their pay from attendance to payslip.
- Check settings. Confirm statutory rates, ceilings and slabs, for every state where you have staff.
- Fix and record. Correct the error, work out any back-payments and note the cause so it does not recur.
Where payroll breaks
The quickest way to fail an audit is to keep attendance, leave and payroll in three spreadsheets that were never reconciled with each other. Running them on one system, where attendance feeds directly into pay, removes most of the typical findings before anyone asks.
Keep an audit file
For each month, keep the signed payroll register, the bank file, the challans and the filing acknowledgements. Name the folders the same way every month. When an inspector arrives, it saves days.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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