Payroll Compliance Audit

Performs comprehensive payroll audits including worker classification, overtime, tax withholding accuracy, compliance checklists, and generates detailed repo...

Security Scan

The skill's requested resources, instructions, and scope are consistent with a payroll audit helper; it is an instruction-only package that doesn't request extra credentials or install code.

Purpose & Capability

Name/description (payroll compliance audit) match the SKILL.md content: worker classification, overtime checks, tax withholding, checklists and report templates. The skill declares no binaries, env vars, or installs — this is coherent for an instruction-only audit guide.

Instruction Scope

SKILL.md stays within payroll-audit scope and asks the user/agent for payroll context (employee counts, states, schedules, payroll provider). It does not instruct the agent to read unrelated system files or exfiltrate data. Note: the document does not include guidance for secure handling/minimization of sensitive payroll data or where to fetch 'current tables' (it assumes the agent/user supplies up-to-date figures).

Install Mechanism

No install spec and no code files — lowest-risk installation profile. Nothing is downloaded or written to disk by the skill itself.

Credentials

The skill requires no environment variables, credentials, or config paths, which is proportionate to an instruction-only audit guide. Be aware: actual operation will need sensitive payroll data (employee lists, wages, etc.) provided by the user at runtime — those are not requested as persistent credentials by the skill.

Persistence & Privilege

always is false; the skill does not request persistent presence or permissions to modify other skills or system settings. Autonomous invocation is allowed (platform default) but does not combine with other privilege escalations here.

Assessment

This skill is internally consistent and appears to be an instruction-only payroll audit guide. Before using it: (1) don't provide full payroll system credentials or live feeds to an unvetted agent—supply only the minimum data required or anonymized samples where possible; (2) verify that tax rates/thresholds used are current (SKILL.md contains 2026 figures but may become stale); (3) treat any exposure estimates as advisory and have a qualified payroll/HR/legal professional validate high-risk findings; (4) if you plan to use the external AfrexAI links or paid services, vet that provider separately. If you need the agent to access live payroll systems, require explicit, audited integration rather than pasting credentials into a chat.

Payroll Compliance Auditor

Run a full payroll audit in under 10 minutes. Catches the errors that cost companies $845 per violation.

What It Does

• Classifies workers (W-2 vs 1099) using the IRS 20-factor test
• Audits overtime calculations against FLSA rules
• Checks tax withholding accuracy (federal, state, local)
• Flags misclassification risk with dollar-amount exposure estimates
• Generates quarterly compliance checklists
• Produces audit-ready reports for DOL or state agency reviews

How to Use

Tell your agent:

Full payroll audit: "Run a payroll compliance audit for [company]. We have [X] employees across [states]. Pay frequency is [weekly/biweekly/monthly]."

Worker classification check: "Check if these roles should be W-2 or 1099: [list roles with descriptions]."

Overtime audit: "Audit overtime compliance. Our employees work [schedule]. We're in [state]. Current OT policy: [describe]."

Tax withholding review: "Review tax withholding setup for employees in [states]. We use [payroll provider]."

Audit Framework

1. Worker Classification (IRS 20-Factor Test)

Score each worker across three categories:

• Behavioral Control (6 factors): Instructions, training, integration, personal services, hiring assistants, work hours
• Financial Control (5 factors): Business expenses, investment, profit/loss opportunity, market availability, method of payment
• Relationship Type (4 factors): Written contracts, benefits, permanency, key services

Risk levels:

• 0-4 factors toward employee → Low risk (likely contractor)
• 5-9 factors → Medium risk (review needed)
• 10+ factors → High risk (likely misclassified)

Penalty exposure per misclassified worker:

• Back employment taxes: 15.3% of wages
• FLSA overtime liability: up to 3 years back pay
• Benefits liability: retirement, health, PTO
• IRS penalties: $50-$260 per W-2 failure
• State penalties vary: $5K-$25K per violation (CA, NY, MA highest)

2. Overtime Compliance (FLSA + State)

Check against federal AND state rules (state wins when more generous):

Rule	Federal (FLSA)	California	New York	Washington
OT threshold	40 hrs/week	8 hrs/day OR 40/week	40 hrs/week	40 hrs/week
OT rate	1.5x	1.5x (2x after 12 hrs/day)	1.5x	1.5x
Salary exemption	$58,656/yr (2026)	$66,560/yr	$62,400/yr (NYC)	$67,724.80/yr
7th day rule	None	1.5x first 8 hrs, 2x after	None	None

Common violations:

• Averaging hours across two weeks (illegal under FLSA)
• Not paying OT on bonuses/commissions
• Misclassifying non-exempt as exempt
• Rounding errors exceeding 7-minute threshold
• Auto-deducting meal breaks not actually taken

3. Tax Withholding Accuracy

Verify against current tables:

Federal:

• 2026 FICA: 6.2% SS (wage base $174,900) + 1.45% Medicare
• Additional Medicare: 0.9% above $200K single / $250K married
• FUTA: 6.0% first $7,000 (5.4% credit = 0.6% effective)

State cross-checks:

• SUI rates (experience-rated — verify annual notice)
• SDI/PFL (CA, NJ, NY, WA, MA, CT, OR, CO, MD)
• Local taxes (NYC, Philadelphia, San Francisco, etc.)
• Reciprocity agreements (employees in different state than work)

4. Quarterly Compliance Checklist

Monthly:

• Reconcile payroll register to GL
• Verify new hire reporting (within 20 days)
• Check garnishment calculations
• Review PTO accrual accuracy

Quarterly:

• File Form 941 (federal) by last day of following month
• File state unemployment reports
• Reconcile YTD withholdings to pay stubs
• Review contractor payments approaching $600 threshold
• Audit benefit deductions against enrollment

Annual:

• W-2 distribution by January 31
• 1099-NEC filing by January 31
• ACA reporting (1095-C) by March 2
• Update salary exemption thresholds
• Review state minimum wage changes
• Workers' comp audit preparation

5. Audit Report Format

PAYROLL COMPLIANCE AUDIT REPORT
Company: [Name]
Period: [Q1/Q2/Q3/Q4 YYYY]
Employees: [Count]
States: [List]
Audit Date: [Date]

EXECUTIVE SUMMARY
Overall Risk Score: [Low/Medium/High/Critical]
Issues Found: [Count]
Estimated Exposure: $[Amount]

FINDINGS
[F-001] [Category] - [Severity]
Description: [What's wrong]
Exposure: $[Amount]
Remediation: [Fix]
Deadline: [Date]

RECOMMENDATIONS
1. [Priority action]
2. [Secondary action]
3. [Long-term improvement]

Cost of Getting It Wrong

Violation	Average Penalty
Misclassification (per worker)	$12,000-$25,000
FLSA overtime (per employee)	$1,000-$10,000 + back pay
Late W-2/1099 filing	$50-$580 per form
Failure to deposit taxes	2%-15% of deposit
Willful failure	$100K+ fine + criminal

The DOL recovered $274M in back wages in 2024. Average investigation finds $1,150 per employee owed.

Who This Is For

• HR teams without dedicated payroll compliance staff
• Growing companies expanding to new states
• Businesses using contractors heavily (tech, construction, healthcare)
• Anyone who just got a DOL audit letter

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Built by AfrexAI — AI context packs for business operations. Full compliance automation: $47 Professional Services Pack.

Calculate what payroll errors are costing you: AI Revenue Calculator

Set up your own compliance agent in 5 minutes: Agent Setup Wizard