Payroll audit checklist for New Zealand businesses

There are so many different elements that go into payroll, whether it’s deductions, payday filing or leave calculations. That leaves a lot of room for error, which can be disastrous for a business. Get payroll right and your business will continue functioning. Get it wrong and you’re looking at fines of up to $20,000. 

With that in mind, it never hurts to give your payroll processes a bit of a checkup. Our payroll audit checklist will take you through all the critical elements that you should have in place, to keep you on the right track.

Download the checklist by filling in the form on the right. 

What is a payroll audit?

A payroll audit is a comprehensive review of a business’s payroll records, processes and systems. It’s designed to ensure that there’s no instances of non-compliance or critical mistakes. It also checks that payroll data is accurate, records are being kept correctly and that employees are paid on time.

Payroll audits are vital for businesses of all sizes, from small businesses to large corporations. They’re not just for when something goes wrong either; proactive audits are a smart way to identify and fix potential issues before they become a major headache.

Why payroll audits matter in New Zealand

Well-run payroll is essential to operate a business effectively. Even if you’re confident that your payroll is being completed correctly with each pay run, it never hurts to properly check. Audits can keep your business on the right side of the law.

Here are a few benefits of a payroll audit: 

• Compliance with Inland Revenue requirements: Inland Revenue (IRD) has specific rules around how you manage PAYE, KiwiSaver and other pay deductions. You also need to complete payday filing with every pay run, sending IRD the right information each time. A payroll audit ensures your payday filing is accurate and on time, helping you avoid costly penalties and interest charges.
• Avoiding penalties or back-pay issues: Miscalculations in areas like holiday pay or minimum wage can lead to significant back-pay claims and hefty fines. Auditing your payroll helps you spot these errors, saving you from financial and legal strife down the line.
• Building trust with employees: Payslip mistakes can really damage your employees’ trust in you. By running regular audits, you’ll demonstrate a commitment to paying your team accurately and building a culture of transparency.

What’s covered in the checklist?

Our downloadable checklist is designed to help you run a thorough payroll audit. It’s packed with all the details you need to assess the most important parts of your payroll process.

Employee and pay setup

To run payroll correctly, you need to get the basics right. This section of the checklist focuses on ensuring every new and existing employee is set up correctly in your system. We’ll dive into the details you need like tax codes, KiwiSaver deductions and employment agreements.

Leave entitlements and payments

The leave entitlements in the Holidays Act can be a little challenging to get right. This section supports you in checking that leave balances are accruing correctly and that you’re accurately calculating payment for annual leave, sick leave and public holidays.

Record-keeping and compliance

Accurate and comprehensive record-keeping is a legal requirement in New Zealand. This section covers what records you need to keep, for how long, and how to ensure they are complete and easily accessible. It also goes over what information you should be submitting to the IRD with every pay run.

Common payroll compliance mistakes in NZ

Even with the best intentions, it’s easy to trip up on payroll. Here are some of the most common mistakes New Zealand businesses make that a payroll audit can help you catch.

• Missing or incorrect IRD reporting: Failing to complete payday filing within the timeframe of two working days can lead to penalties from the IRD.
• Misclassifying employees vs contractors: Getting this wrong can result in significant legal and financial consequences. The IRD and Employment New Zealand have clear tests to determine a worker’s status and misclassification can lead to paying back unpaid entitlements.
• Incorrect holiday pay calculations: The complexities of the Holidays Act, particularly with calculating average weekly earnings for leave, are a common source of error that can lead to back-pay claims.

How often should you run a payroll audit?

It’s a good idea to check in regularly. We suggest performing a full payroll audit at least once a year. It might also be helpful to complete a short review every quarter, as it can help you catch small errors before they become major problems.

Tools and support for payroll audits

You don’t have to go it alone. The right tools and support can make payroll audits a seamless part of your business operations.

Your best partner in managing payroll is comprehensive payroll software like Employment Hero. Employment Hero can automate pay runs, leave calculations and payday filing. It can also calculate the right wage payments for employees through digital timesheets. Finally, it’s one single source of truth for all that payroll data you need for an effective audit. Find out more about Employment Hero’s payroll software here. 

If payroll is feeling overwhelming or if you’re concerned that you’ve got some compliance issues in your business, you may want to consider HR advisory support. Employment Hero’s HR advisory service can provide expert guidance for those trickier queries or concerns.

Download your complete payroll audit checklist

Get compliance confidence in your payroll and download our checklist by filling in the form on the right. 

The information in this article is current as at 15 September 2025, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.f the unique benefits on offer for both you and your clients.