Reconciliation of wages

What Is Reconciliation of Wages?

Reconciliation of wages is the process of reviewing, matching, and verifying payroll records against accounting entries, bank payments, and tax obligations to ensure accuracy, compliance, and transparency. It's a critical part of payroll and financial management, especially for Australian businesses needing to meet strict obligations under the Fair Work Act, ATO reporting standards, and Single Touch Payroll (STP) requirements.

Wage reconciliation ensures that what an employer says they’ve paid staff (via payslips and accounting reports) aligns with what was actually processed through payroll systems and bank transactions. It also validates that superannuation, PAYG withholding, and other payroll deductions were accurately calculated and reported.

Why Wage Reconciliation Matters

• Prevents payroll errors: Detects underpayments, overpayments, duplicate payments, or missing employees.
• Ensures compliance: Aligns with legal obligations under Fair Work, PAYG withholding, and superannuation laws.
• Accurate financial reporting: Ensures wages on the profit and loss (P&L) are correct and aligned with payroll records.
• Prepares for audits: Reconciled payroll records are easier to present in case of internal or ATO audits.
• Supports EOFY processes: Essential when lodging Payment Summaries or finalising STP at the end of the financial year.

Key Steps in the Wage Reconciliation Process

1. Gather Payroll Data
   • Collect payroll reports including payslips, timesheets, leave accruals, and gross pay summaries.
   • Export data from your payroll system such as Microkeeper.
2. Match with Accounting Entries
   • Reconcile payroll totals against wage expense accounts in your accounting software (e.g. Xero, MYOB, QuickBooks).
   • Confirm the correct allocation of wages, superannuation, PAYG, and deductions.
3. Cross-Check Bank Payments
   • Match actual bank transfers (net pays) against payroll journals and payment files.
   • Ensure superannuation payments have been processed through a clearing house like Beam or via the Small Business Superannuation Clearing House (SBSCH).
4. Validate PAYG and Super Obligations
   • Compare PAYG withheld and super accrued against the figures lodged via STP.
   • Ensure your Single Touch Payroll submissions match year-to-date totals.
5. Investigate Discrepancies
   • Identify any mismatches or anomalies and adjust accordingly (e.g. fix an overpayment or missed payment).
6. Record Adjustments
   • Document any changes made, why they occurred, and ensure they are reflected in your accounting and payroll systems.

Best Practices for Wage Reconciliation

• Reconcile regularly – Ideally each pay cycle, or at minimum monthly or quarterly.
• Automate where possible – Use payroll software like Microkeeper to streamline data collection and reduce manual entry.
• Use integrated systems – Connecting your payroll system with accounting software eliminates the need for duplicate data entry and improves accuracy.
• Set up a checklist – A wage reconciliation checklist ensures consistency, especially during end-of-year financial processing.
• Involve your bookkeeper or accountant – They can help validate figures, especially around tax and super compliance.

Common Wage Reconciliation Issues

• Mismatched pay dates or payroll cycles
• Incorrect leave accruals
• Manual adjustments not recorded in all systems
• Bank transfer errors or delays
• Changes in employee tax file numbers or super fund details not updated

These issues can lead to non-compliance, employee disputes, or penalties from the ATO. That’s why wage reconciliation is essential to accurate and reliable payroll management.

How Microkeeper Supports Wage Reconciliation

Microkeeper simplifies the wage reconciliation process by providing:

• Real-time payroll summaries and journal exports
• Award interpretation tools to ensure correct gross pay and entitlements
• STP integration for instant ATO reporting and matching
• Payslip history and audit trails to validate previous payments
• Superannuation integration with Beam to streamline super reporting and payments

FAQs About Reconciliation of Wages

How often should I reconcile wages?

‍It depends on your business size, but weekly, fortnightly, or monthly reconciliation is recommended, and it’s essential at EOFY.

What happens if I find a discrepancy?

‍Discrepancies should be corrected promptly in your payroll system and communicated to affected employees. Any overpaid tax or super can be corrected with the ATO or super fund provider.

Is reconciliation part of STP compliance?

‍Yes, since STP requires real-time wage and tax reporting, reconciliation ensures the figures submitted are accurate and reflect actual payments made.

Final Thoughts

Reconciliation of wages is a cornerstone of accurate payroll management and financial integrity. It ensures that your business is paying staff correctly, staying compliant with regulatory obligations, and keeping accurate financial records. With streamlined tools like Microkeeper’s payroll and accounting integrations, wage reconciliation becomes a manageable, transparent, and vital part of your operations.

_{Disclaimer: This content is provided for informational purposes only and does not constitute legal or financial advice. For compliance-related matters, consult with a registered BAS or tax agent, or the ATO.}