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Payroll Compliance Audit Basics

What is a Payroll Compliance Audit?

A payroll compliance audit is the review of an employer’s records to verify compliance to the applicable collective bargaining agreements (CBAs) and trust documents. The audit is performed in accordance with the plan’s payroll audit policy.

Why is it Important?

Under the Employee Retirement Income Security Act (ERISA), it is the trustees’ fiduciary responsibility to ensure that contributions due to the plan are collected. The trustees comply with their fiduciary responsibility by requiring payroll compliance audits be routinely performed for their employers.

Benefits for the Plan

  • Ensures that plans are adequately funded.
  • Identifies problem employers.
  • Keeps employers honest.
  • Prevents a competitive advantage for employers not contributing correctly to the plan.
  • Protects the covered work from being performed by non-union subcontractors.

Benefits for Employers

  • The audit will provide assurance that contributions to the plan(s) were made properly.
  • The audit process may reveal deficiencies in contributions due to incorrect contributing procedures or controls, in which case the employer can take measures to remedy their contribution process.
  • New employers can ensure they are contributing properly and problems can be caught early.

Required Records

The required records are tailored to meet the requirements of the plan’s payroll audit policy.
In most cases, we require access to payroll, year-end and quarterly tax records, disbursement records, general ledger and personnel information (i.e., job titles, wage rates, hire and termination dates).

Here is a sample list of required records:

  1. Payroll records
  2. Employer’s Federal 941 Quarterly Payroll Tax Returns
  3. Employer’s Federal annual earnings reports: Form W-2, W-3, 1099, 1096
  4. State Quarterly Unemployment Compensation Reports
  5. Employer copies of monthly contribution reports for all fringe benefit funds
  6. General ledger and cash disbursement records
  7. Employee roster of all employees including job title/duties, wage rate/salary, hire and term dates
  8. Form 1120 (Corporations)
  9. Copy of the last Workers’ Compensation audit

What Employers Can Expect

The employer will receive a letter from the plan detailing the records needed and stating that Calibre CPA Group, PLLC will be performing the audit. Calibre will contact the employer to schedule the audit. After the audit has been scheduled, the employer will receive a letter confirming the scheduled audit and detailing the records required to conduct the audit. During the audit, the auditor will ask questions regarding the contribution process, payroll and tax records will be reviewed and the auditor will request additional detail on records provided. Findings will be sent to the employer by Calibre, the plan or both.

Tips for Trustees
  • Have a payroll compliance audit policy in place.
  • Ensure that audit letters are sent in a timely manner and include the required records.
  • Include required records in the trust agreement.
Tips for Employers
  • Have the records prepared upon the auditors’ arrival.
  • If there are any questions on the records requested, contact the auditor prior to the audit date.
  • If there are any deficiencies, conduct a self-audit to confirm the findings.
  • Familiarize yourself with the terms and conditions of your CBA.
  • Wait to pay – The plan will send you an invoice for amounts due. Do not issue payments to Calibre.

Conclusion

Payroll compliance audits are performed for the benefit of plan fiduciaries, employers and plan participants. They are required to ensure employers are reporting and contributing correctly to the plan. An audit will help employers identify issues in their reporting procedures, while also helping the plan receive all contributions due.

By: Nancy Cabiya | Compliance Asst. Manager