Payroll reconciliation

What Is Payroll Reconciliation?

Payroll reconciliation is the process of cross-checking and verifying all payroll-related data to ensure that employees are paid accurately, employer obligations are met, and compliance is maintained. This involves comparing the calculated payroll figures against accounting records, timesheets, leave balances, tax withholdings, and superannuation contributions.

In Australia, payroll reconciliation is essential for ensuring adherence to Fair Work obligations, ATO reporting (such as PAYG withholding and Single Touch Payroll), and correct superannuation payments. It is typically performed at the end of each pay cycle and during end-of-financial-year (EOFY) processing.

Why Payroll Reconciliation Matters

Failing to reconcile payroll properly can lead to:

• Incorrect employee payments, resulting in dissatisfaction or legal disputes
• ATO penalties for inaccurate PAYG or super reporting
• Compliance issues with Fair Work and modern awards
• Financial inaccuracies in your general ledger

Whether you run a small business or manage a large workforce, payroll reconciliation is crucial to maintaining financial integrity and legal compliance.

Core Components of Payroll Reconciliation

To perform payroll reconciliation effectively, businesses must check and verify the following elements:

1. Employee Hours vs Timesheets

Compare recorded work hours, including overtime and breaks, with digital or manual timesheets to ensure they match. This helps validate gross pay calculations.

2. Leave Records

Ensure that leave taken (e.g. annual leave, personal leave, long service leave) has been accurately deducted from employee leave balances.

3. Gross Pay and Net Pay

Cross-check gross wages, bonuses, commissions, and deductions (such as salary sacrifice or garnishments) to confirm the net pay matches the payslip.

4. PAYG Withholding

Ensure PAYG withholding amounts are correctly calculated and match the ATO tax tables. Incorrect PAYG figures can cause problems at EOFY or with STP Phase 2 reporting.

5. Superannuation Contributions

Verify that super is calculated at the correct rate (currently 11.5% as of FY24–25) and matches what was submitted via your super clearing house.

6. Banking and Payment Files

Confirm that the total amounts paid via your bank match the payroll register and that employees received correct payments.

7. Journal Entries and Accounting Integration

Check that payroll journal entries correctly reflect wages, liabilities, and taxes in your general ledger or accounting software (e.g., Xero, MYOB, QuickBooks).

When to Reconcile Payroll

How Payroll Software Simplifies Reconciliation

Manual reconciliation using spreadsheets is prone to error and can be time-consuming. Modern payroll management software, like Microkeeper, automates many parts of this process:

• Automatically matches timesheets, leave, and rosters to payroll
• Generates audit trails and payroll summaries for each pay run
• Flags discrepancies before finalising a pay
• Prepares PAYG and super reports for each cycle
• Provides ATO-compliant Single Touch Payroll lodgement in real time

Discover Microkeeper’s Payroll Tools

Best Practices for Accurate Payroll Reconciliation

1. Use integrated systems
   Link your HR, payroll, rostering, and time tracking data to reduce inconsistencies.
2. Schedule regular checks
   Don’t wait for the end of the year. Make reconciliation a regular habit per pay cycle.
3. Maintain clean employee records
   Keep tax file numbers, bank details, super fund info, and job classifications up to date.
4. Review awards and pay rates
   Pay updates and modern award changes can affect your payroll. Regularly confirm your system reflects the latest Fair Work rates.
5. Generate reports after each run
   Export payroll summaries, super reports, and journal entries to cross-check payments and records.

FAQs About Payroll Reconciliation

How long should I keep payroll records?

‍Under Fair Work rules, you must keep payroll records for at least 7 years.

Can payroll reconciliation detect fraud?

‍Yes. Regular reconciliation can uncover suspicious payments, ghost employees, or time theft.

What happens if I make a mistake in payroll?

‍You should correct it as soon as possible. For ATO-related issues, updated STP submissions can be lodged. Consult your accountant if unsure.

Final Thoughts

Payroll reconciliation is more than a routine task, it’s a vital process for financial accuracy, employee trust, and legal compliance. By adopting modern payroll tools and maintaining good reconciliation habits, Australian employers can protect their business from costly errors and focus on growth.

With Microkeeper’s end-to-end workforce platform, reconciliation becomes a seamless part of your pay run. Automate, verify, and stay compliant—all in one place.

_{Disclaimer: This glossary article is for informational purposes only. Please consult with a qualified accountant or payroll expert for specific advice regarding payroll reconciliation in your business.}