Managing Payroll Reconciliations with Success

May 05, 2026 | By Sarah Jenkins, CPA

Payroll reconciliation documents and calculator

Processing the pay run is only half the job. The real challenge in payroll management is ensuring that what you told the ATO via Single Touch Payroll (STP) matches what you actually paid from your bank account.

If these figures drift apart, you risk underpaying superannuation, reporting incorrect taxes, or facing a nightmare at End of Financial Year (EOFY). Here is the 4-step framework we use to ensure perfect payroll reconciliations.

1. The "Three-Way Match" Method

Never assume your software is right. To reconcile payroll successfully, you must compare three independent sources of truth:

Source A: The Payroll Activity Summary. This is the report generated by your payroll module (e.g., Xero Payroll).
Source B: The General Ledger (GL). These are the "Wages Payable" and "Wages Expense" accounts in your Balance Sheet and P&L.
Source C: The Bank Statement. The actual cash that left your account.

If Source A says you paid $10,000, but Source C says $9,500, you have a problem that needs immediate investigation.

2. Clearing Accounts are Your Best Friend

A "Wages Payable" clearing account is the heartbeat of healthy payroll. It works like this:

When you process a pay run, the system Credits Wages Payable (creating a liability).
When you pay the staff from the bank, you Debit Wages Payable (reducing the liability).

The Success Metric: At the end of the month (after everyone is paid), this account should be exactly $0.00. If there is a balance sitting there, it means you either forgot to pay someone, or you have a duplicate transaction.

3. Don't Forget Superannuation Variances

Super is often where reconciliations fail. Because Super is paid quarterly but accrued weekly, there will always be a balance in your "Super Payable" account.

However, you must check that the balance matches the unpaid months exactly. If your Balance Sheet shows $15,000 owing, but your unpaid Super report only shows $12,000, you have a "Ghost Variance" that will haunt you at tax time.

4. STP Finalisation Check

Before you hit the "Finalise" button for EOFY, run a YTD Verification Report. Ensure the "Gross Wages" figure matches your P&L "Wages and Salaries" account.

Pro Tip: Don't forget to check "Wages Payable - Salary Sacrifice." This is often misallocated to a liability account instead of reducing the gross wage expense, causing discrepancies in your BAS.

Is your Payroll a mess?

Payroll errors are the hardest to fix because they affect real people's bank accounts. We can run a "Payroll Health Check" to find variances and fix them before the ATO notices.

Book a Payroll Health Check

Summary

Payroll reconciliation isn't just about compliance; it's about confidence. By reconciling your clearing accounts monthly, you ensure that every dollar is accounted for, keeping your staff happy and your business safe.