It is best practice to procure an external auditing service, such as OPRaaS, for an objective review of payroll compliance in your supply chain. However, self-audits of your labour supply chain are strongly recommended as part of your assurance and due diligence processes.

As the end-hirer, you may access relevant workforce data and audit suppliers for compliance where you have a lawful basis under UK GDPR (e.g., legitimate interests/contract) and appropriate contractual/data-sharing provisions. Use data minimisation and secure transfer.

To conduct an accurate audit, gather supporting documentation and cross-check it with payslips. For example:

• Timesheets: Check that hours worked match the payslip data.
• Expense claims: Verify that claims are legitimate and supported by valid invoices or receipts.
• Bacs transfer data: Confirm that net pay aligns with the amount actually received by the worker.
• RTI (FPS/EPS) reports and HMRC Business Tax Account receipts: Confirm deductions shown are actually remitted.
• (For CIS): monthly CIS300 returns and subcontractor statements: Check verification numbers/rates and that deductions exclude VAT/materials.

Red flags to watch for:

• Sudden drops in taxable earnings despite consistent business activity.
• Requests for cash payments or irregular wage reporting to HMRC.
• Unexplained discrepancies between declared income and claimed expenses/patterns (use proportionately).
• Inconsistent or missing statutory deductions, such as PAYE or NICs, on payslips.
• No Real-Time Information (RTI) submissions for workers.
• Missing hours on payslips where pay varies by hours worked.
• Umbrella “employer on-costs” (e.g., employer NICs/apprenticeship levy) charged to the worker.
• Prolonged use of emergency tax codes (e.g., 1257L W1/M1) without correction.

By maintaining robust auditing practices and identifying potential issues early, you can protect your business from compliance risks and ensure workers are treated fairly.

Why Payslip Audits Matter

Robust auditing practices allow you to:

• Identify non-compliance issues early.
• Minimise legal and financial risk.
• Prevent reputational damage.
• Ensure workers are paid lawfully and transparently.
• Demonstrate active supply chain governance to HMRC, investors, and clients.

Below are examples of things to include in your checks:

When auditing payslips and payroll records, consider the following areas to help identify potential errors, irregularities, or compliance risks:

Incorrect National Insurance (NI) Contributions – Check that NI contributions are calculated correctly based on the employee’s earnings and the relevant thresholds for the current tax year. Errors can impact both tax compliance and workers’ future entitlements.

Inconsistent Pay Dates – Verify that pay dates are consistent with the agreed payroll cycle. Irregular or unexpected payment dates may indicate payroll manipulation or administrative oversight.

Unexplained Deductions – Review all deductions listed on the payslip. Any deductions that are not statutory (such as PAYE or NI) or not contractually agreed (such as pension contributions) should be clearly explained and authorised.

Discrepancies Between Gross and Net Pay – Ensure that net pay accurately reflects gross earnings minus all deductions. Significant mismatches may point to errors in calculation or undisclosed deductions.

Multiple Payroll Entries for the Same Employee – Look for duplicate records or payments for the same worker within a single payroll period. These could be signs of clerical error or potential payroll fraud.

Hours requirement – Where pay varies by hours, the payslip must show hours paid.

Holiday pay – Method is transparent (and if rolled-up is used for irregular/part-year workers, it’s itemised and compliant).