Running a payroll reconciliation in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
A payroll reconciliation is the process of confirming that the amounts you have paid employees, withheld for tax, and reported to the ATO all match — across your payroll system, your general ledger, and your STP submissions. Done correctly, it catches errors before they become compliance problems.
What reconciliation actually involves
Reconciliation works by comparing three things: what your payroll software calculated, what you actually paid out of your bank account, and what you have reported to the ATO via Single Touch Payroll. If those three figures agree for every employee and every obligation — gross wages, PAYG withholding, superannuation, and any HECS/HELP deductions — you are reconciled.
Most employers run a reconciliation at the end of each pay run, at the end of each quarter (to align with BAS lodgement), and at year-end before STP finalisation on 14 July.
Step 1 — Reconcile gross wages and PAYG withholding
Start with gross wages paid in the period. Pull the payroll register from your software and total it. Cross-check that figure against your bank statements; the net wages transferred to employees plus the PAYG withheld should equal total gross wages.
PAYG withholding is reported on your Business Activity Statement each quarter. The withheld amounts declared on each BAS across the financial year should sum to the total PAYG figure sitting in your STP year-to-date data. If they do not match, trace back to individual pay events to find where the figures diverged.
Tax is progressive and applied per the ATO's tax tables, so errors often appear when an employee's tax scale was set incorrectly — for example, the wrong residency status or a missed tax file number declaration.
Step 2 — Check Medicare levy and HECS/HELP deductions
The Medicare levy sits at 2% of taxable income for most employees and is built into the ATO's withholding tax tables, so it generally reconciles automatically if your PAYG figures are correct. Still, verify that any employees who claimed a Medicare levy exemption or reduction actually had the relevant declaration on file.
HECS/HELP repayments are withheld on top of normal income tax using a banded repayment scale. Because these are reported through STP as a component of total withholding, confirm that employees with a study debt had the correct repayment rate applied throughout the year. A mismatch here will flow through to their individual income tax assessment and can prompt ATO queries back to you.
Step 3 — Reconcile superannuation
Superannuation is one of the most common reconciliation failure points. The Superannuation Guarantee is 12% of ordinary time earnings, and it must be paid to a complying fund by the quarterly due dates.
Your reconciliation should confirm:
- The super calculated in your payroll system matches what was actually paid to the fund (or clearing house)
- The earnings base used — ordinary time earnings — excludes overtime correctly
- The total super accrued in STP year-to-date data matches what has been remitted
If you pay through a clearing house, note that the ATO considers super paid on the date it is received by the clearing house, not the date it is received by the employee's fund. Keep remittance records that show both dates.
Step 4 — Reconcile leave balances
Leave reconciliation is separate from the tax and super figures but equally important. Under the National Employment Standards, full-time employees accrue four weeks of annual leave per year. Your payroll system's leave ledger should reflect accruals, adjustments, and paid-out leave accurately.
Check that:
- Accrual rates in the system match each employee's contracted hours and any applicable award
- Leave taken has been deducted at the correct rate, including leave loading where the award or contract requires it
- Any redundancy payments made during the year used the correct years-of-service figure to calculate the statutory entitlement
Errors in leave balances can create material liabilities on your balance sheet that only surface at audit or when an employee resigns.
Step 5 — STP finalisation and year-end close
By 14 July each year, you must finalise your STP data for the previous financial year. Finalisation tells the ATO that the year-to-date figures for each employee are complete and correct, and it makes those figures available in employees' myGov accounts as their income statement — replacing the old payment summary.
Before you click finalise, run a full year-to-date extract from your payroll software. For each employee, confirm gross income, total PAYG withheld, reportable employer super contributions (if any), reportable fringe benefits amounts, and HECS/HELP withheld. Reconcile those totals against your BAS lodgements across the four quarters of the year.
Any corrections after finalisation require an amended STP submission. The ATO does accept amendments, but they delay employees' ability to lodge their own returns, so thoroughness before finalisation is worth the effort. If you are managing payroll across multiple entities or jurisdictions, a consolidated reconciliation checklist — with sign-off at each step — makes the process auditable and repeatable. How Mellow runs payroll across six countries on one platform illustrates how a structured approach scales beyond a single country.
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