Conducting a payroll reconciliation ensures that your payroll is accurate. You don’t want to under or over pay your employees – and you don’t want to pay the wrong amount of payroll tax, either.
What is payroll reconciliation?
Payroll reconciliation is the process of double-checking your payroll register and payslips to make sure you've paid your employees and recorded the details correctly. Reconcile your payroll at least once every pay period, whether that's weekly, fortnightly or monthly.
You should also complete an annual payroll reconciliation as part of your end-of-year payroll tasks, which you will need to submit to your state or territory revenue office. These calculations will confirm you’ve paid the correct amount of payroll tax.
Why is payroll reconciliation important?
Payroll reconciliation is important because it helps you avoid costly mistakes, like underestimating tax or under or overpaying employees, which can lead to fines and other penalties.
Let's look at some of the ways payroll reconciliation benefits your business.
Ensure you’re prepared for payroll tax
Ensure you’re prepared for payroll tax by checking that your total wage bill is correct. Do this by comparing how much payroll tax you’ve paid with how much you’re liable for.
Because the state or territory revenue office puts the onus on employers to self-assess payroll tax each month, it's crucial to check and double-check your wage bill. If you haven’t paid enough payroll tax, you’ll need to fix this in your annual reconciliation. Otherwise, you may face payroll tax penalties, which could lead to serious cash flow problems.
Accurately pay employees
Paying employees accurately and on time is a fundamental responsibility for business owners, and regular reconciliation can help you identify and rectify any errors. Pay delays and errors are frustrating for your employees, and could contribute to increased churn and damage to your reputation.
Avoid any fines or penalties
Avoid fines or penalties by carrying out regular and thorough payroll reconciliation. These fines can be levied on you by the Australian Tax Office, Fair Work Ombudsman and your state and territory revenue office for any payroll errors and other wage issues.
How to conduct payroll reconciliation
Knowing how to conduct payroll reconciliation is vital for any small business owner. Let's have a look at the six main steps involved in reconciling your payroll.
1. Check your payroll register
Check your payroll register to make sure all your employee information is accurate and up to date. The register should include basic information like their full names, contact details and dates of birth, as well as any tax-related details. Ensuring you have an effective employee onboarding process will make this step much easier in the long run.
While it's possible to keep a payroll register on paper or in a basic Excel spreadsheet, it's easier to record, track, and manage these details with a payroll system.
2. Check pay rates and salaries
Check pay rates and salaries regularly to avoid miscalculating staff wages. If you give an employee a raise or a staff member reduces their contract to part-time, update this in your register and then double-check the details when you reconcile your payroll.
3. Double-check timesheets
Double-check timesheets to make sure all employee work hours have been properly recorded and accounted for. You’ll also need to include any variables like overtime, paid time off and unpaid leave.
If you use time-tracking software, you should be able to easily check hours recorded against rosters. If you use physical or online timesheets, you may need to manually check to make sure all hours have been noted.
4. Confirm all pay deductions
Confirm the pay deductions you need to subtract from your employees' wages. If a staff member's wages equal more than $18,200, you'll need to withhold income tax (PAYG withholding) on their payslip. The tax they need to pay depends on their income bracket, so check the tax tables on the Australian Taxation Office website.
In addition to income tax, you need to determine whether your employees are liable for the Medicare levy surcharge by checking the MLS thresholds and rates for the current financial year.
You’ll also need to take into account other deductions, such as voluntary super contributions, student loan repayments and child support.
With MYOB Business or MYOB Payroll Only, you can automate these calculations and be confident these details are correct every pay run.
5. Record payroll in your general ledger
Record payroll in your general ledger, along with all your other business transactions.
You might find it easier to use accounting software to automate this step.
6. Submit your payroll
Submit your payroll information to the ATO once you're confident all your employee details, wage calculations and tax deductions are accurate.
How do I submit my payroll on single touch payroll (STP)?
To submit your Single Touch Payroll (STP) data, you need to use STP-enabled payroll or accounting software. Alternatively you can ask a third party, such as a registered tax or BAS agent to submit it for you.
The Australian Government introduced STP in 2018 to streamline the process of reporting your payroll information to government agencies. It was expanded in 2022 to include further information – all Australian employers should now be following the guidelines to report through STP Phase 2.
Payroll reconciliation FAQs
What are the different types of reconciliation?
In addition to payroll reconciliation, other types of account reconciliation include:
Bank reconciliation: checking that your bank account statements match the cash balances on your general ledger
Vendor reconciliation: reviewing your accounts payable records to ensure they match the amounts on receipts or statements from your vendors
Customer reconciliation: checking your accounts receivable against your customers' payment records to make sure the amounts line up
Business-specific reconciliation: comparing your company records at the start and end of an accounting period to make sure that your records accurately reflect sales for that period
Inter-company reconciliation: comparing the general ledgers of subsidiary and parent companies to identify discrepancies and verify that the consolidated financial records of the group are accurate
Businesses may also want to reconcile their inventory and expenses to ensure their financial records are accurate.
How often should a business conduct payroll reconciliation?
Your business should conduct payroll reconciliation every pay period and at the end of the financial year. If you pay employees weekly, you should reconcile your payroll every week.
An annual reconciliation helps you spot any discrepancies in your calculations from the previous 12 months.
It pays to get payroll right
As a business owner, payroll can often be your biggest expense, so it's worth the effort to get it right every time. If the admin involved with payroll accounting is weighing you down, let us lighten the load.
With MYOB cloud payroll software, you can automate, simplify, and optimise almost all your payroll processing tasks, boosting accuracy, reducing errors, and giving you more time to spend on growing your business.
Get started today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.