How to Perform a Global Payroll Audit

Managing global payroll is complex enough when everything runs smoothly. But the financial and legal consequences can be devastating when discrepancies emerge — whether from calculation errors, compliance oversights, or, worse, fraudulent activity.

Regular payroll audits aren't just a nice-to-have administrative task. They're your financial safety net, catching payroll errors and other mistakes before they compound into six-figure problems and ensuring your international team gets paid accurately and on time.

Key takeaways: 

• Conducting regular payroll audits helps identify compliance gaps, calculation errors, and potential fraud before they escalate into costly legal liabilities.
• Global payroll audits require specialized knowledge of local tax laws, employment regulations, and currency considerations across multiple jurisdictions.
• Implementing systematic audit processes and leveraging technology can significantly reduce the complexity and time investment required for thorough payroll reviews.

Why Is it Important to Perform Regular Payroll Audits?

Think of a payroll audit as a financial health check-up for your global operations. Just as you wouldn't skip annual medical exams, regular payroll audits can catch problems early before they metastasize into business-threatening issues.

The stakes are particularly high for global companies. A payroll error costing USD 5,000 to fix in one country could balloon to USD 50,000 when factoring in penalties, back taxes, and legal fees across multiple jurisdictions. Companies that discover years of accumulated errors often face compliance issues that can trigger government investigations and damage their reputation.

Most payroll management experts recommend conducting comprehensive audits at least annually, with quarterly spot-checks for high-risk areas. Companies experiencing rapid international expansion or operating in countries with frequent payroll regulation updates may need to conduct more frequent internal payroll audits.

Beyond reducing non-compliance risk, accurate payroll directly impacts employee satisfaction and retention. Late or incorrect payments create immediate stress for your team members, especially those living paycheck-to-paycheck. When payroll errors persist, they erode trust in your organization and can lead to higher turnover rates, which can be particularly costly when it results in needing to replace specialized global talent.

Common Payroll Fraud Issues to Be Aware Of

The global nature of remote work has created new opportunities for fraudulent activity. Here are some common forms of payroll fraud:

• Ghost employees: Fake workers added to the payroll system to siphon off funds (e.g., Linda Johnson, a Pennsylvania Wendy's manager, stealing USD 20,000 via a fake employee named William Bright)
• Buddy punching: When one employee clocks in for another to inflate worked hours
• Wage manipulation: Altering pay rates or hours worked for personal gain
• Unauthorized bonuses or deductions: Changes made to employee compensation without approval or justification

In one notable case, a payroll administrator used other employees' information to submit false payment requests, which she pocketed herself, totaling USD 1.6 million in payroll fraud.

Strong internal controls and regular payroll audits can help detect these red flags early.

Who Should Handle the Global Payroll Audit?

If a government agency or tax authority triggers your audit, it will likely be conducted by an external auditor or accountant. But if you're proactively reviewing your payroll processes internally, the responsibility can fall on:

• An internal payroll or finance team (if you have the expertise and resources)
• An external auditor or consultant (ideal for smaller teams or when dealing with new countries)
• A global payroll provider or Employer of Record who can help ensure compliance across borders

The complexity of global payroll audits often determines who should lead the process. External auditors with specific expertise in international employment law typically handle the review for government-mandated audits or investigations triggered by compliance issues.

For proactive internal audits, the decision depends on your organization's resources and expertise. Large companies with dedicated global payroll teams may have the internal capability to conduct thorough audits. However, most organizations benefit from external expertise, particularly when dealing with multiple countries' tax codes and employment regulations.

Small to medium-sized businesses should strongly consider outsourcing payroll audits to specialists. The cost of hiring experts is typically far less than the potential penalties for undetected errors. External auditors also bring objectivity and can identify issues that internal teams might overlook or feel reluctant to report.

Consider using a hybrid approach: internal teams handle routine data gathering and preliminary reviews, while external experts focus on complex compliance issues and final verification. This approach balances cost control with thorough oversight.

How to Prepare for an Effective Payroll Audit

Before diving into the audit process, gather all relevant payroll records and documentation. These might include:

• Employee information, including contracts and onboarding documentation
• Time tracking and attendance logs
• Payroll software reports and payslips
• Tax filings and withholding statements
• Social Security or pension contribution records
• Employee benefit enrollment forms
• Bank statements

Pay close attention to country-specific items that may not be required in one country but are in another — for example, CPF contributions in Singapore and income tax forms in India.

Verify employee classifications for all workers. Gather contracts and work arrangements to confirm whether individuals should be classified as employees versus independent contractors. Misclassification issues can trigger significant penalties and back-payment requirements in many countries.

What to Look for During a Payroll Audit

Short answer, that the numbers match, everything seems on the up and up, etc.

When conducting the audit, your main goal is to ensure the numbers — and the processes behind them — align. Here's a payroll audit checklist of what to look for:

• Tax and compliance errors: Are you correctly calculating and remitting payroll tax in every jurisdiction?
• Timekeeping inconsistencies: Are time logs accurate? Any signs of buddy punching?
• Employee pay discrepancies: Are employees being overpaid, underpaid, or paid late?
• Fraud indicators: Any unusual adjustments, duplicated payments, or unauthorized changes?
• Benefits and PTO data: Are leave balances, holiday pay, and health contributions being tracked correctly?
• Worker classification issues: Are you misclassifying employees as contractors to avoid tax or benefits?
• Withholding errors: Are all deductions (tax, social security, pension) going to the appropriate government entities?

Additionally, if you handle payroll for employees in the European Union or the U.K., ensure your process complies with GDPR and other data privacy regulations.

How to Simplify the Global Payroll Audit Process

The more haphazard and chaotic your payroll system is, the more complex the audit will likely be. Here's how to make it easier:

• Stay organized: Use centralized digital systems to track all employment and payroll records across jurisdictions. Create standardized checklists for each country where you operate, accounting for local requirements and deadlines.
• Set a regular cadence: Build audits into your annual or quarterly processes so you're not left scrambling at the last minute.
• Use global payroll software: Modern payroll systems can flag unusual transactions, enforce approval workflows, and generate comprehensive reports for audit purposes. The initial investment in quality payroll software typically pays for itself through reduced errors and audit costs.
• Partner with an Employer of Record (EOR): An EOR like RemoFirst can significantly reduce your audit burden by handling local compliance, payroll tax, employment contracts, and more.

Without proper tools, even a small error, like a miscalculated overtime pay rate in Germany, can go unnoticed for months.

Ensure Your Global Payroll Is Accurate With RemoFirst

Managing global payroll across multiple countries while maintaining compliance and accuracy requires specialized expertise that most companies don't have in-house. RemoFirst handles global payroll for clients with employees in 185+ countries and contractors in 150+ countries, ensuring accuracy and compliance while paying staff in their local currencies.

As an Employer of Record, we handle the heavy lifting of global payroll compliance. That includes processing payroll, ensuring proper tax withholdings, adhering to local labor laws, and securing employee data.

When you partner with RemoFirst, you're not just outsourcing payroll; you're gaining a compliance partner that helps prevent the issues that make payroll audits stressful and expensive.

Need help avoiding payroll pitfalls and staying compliant across borders? Book a demo to see how RemoFirst can simplify global payroll and help you confidently grow your team.