How to reconcile payroll
A complete guide to reconciling payroll to ensure employees are paid correctly and your business is compliant with Australian workplace laws.
Written by
Georgia Morgan
This guide provides general information about payroll reconciliation in Australia. It does not constitute legal, HR, or professional advice and should not be relied on as a substitute for advice specific to your business, workforce, or circumstances.
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Key takeaways
- Payroll reconciliation verifies that wages paid match approved timesheets, rostered hours, and employee entitlements
- Follow a six-step process: gather source documents, verify hours, check pay rates, reconcile leave, verify deductions, and resolve discrepancies
- Reconcile at different intervals — basic hours checks each pay run, fuller rate and leave reviews monthly, and a full audit at EOFY
- Since January 2025 intentional underpayment is a criminal offence, so catching and correcting errors promptly matters
Why reconcile payroll?
Payroll reconciliation is the process of verifying that the wages you're paying match what employees actually worked and what they're entitled to. As Trintech explains, reconciliation catches discrepancies between payroll records and source documents before they become costly problems.
Since January 2025, intentional wage underpayment is a criminal offence in Australia. Regular reconciliation helps demonstrate you're taking reasonable steps to pay employees correctly and maintain compliance.
EOFY is the most critical time to reconcile — see our complete guide on how to complete EOFY payroll for the full process including STP finalisation and super deadlines. You should also ensure you have a solid understanding of calculating payroll from timesheets before setting up your reconciliation process, and a payroll reconciliation template can give you a structured starting point. To reduce manual discrepancies, payroll integration pushes approved timesheets straight to your payroll system, and you can estimate true payroll costs before each run to know what your reconciled figures should land at.
6 steps to payroll reconciliation
Follow this process each pay period to ensure accurate payroll. If you use Xero, their support centre covers how to reconcile payroll payments in that system.
Gather source documents
Collect all records needed to verify payroll accuracy, including timesheets, rosters, and leave records.
Check:
- Approved timesheets from time and attendance system
- Published rosters (to compare actual vs scheduled hours)
- Leave requests and approvals
- Overtime authorisations
- Any manual adjustments or corrections
Verify hours worked
Compare hours in the payroll system against approved timesheets to ensure they match.
Check:
- Check total ordinary hours for each employee
- Verify overtime hours are correctly categorised
- Confirm penalty rate hours (weekends, public holidays, evenings)
- Check that break deductions have been applied correctly
Check pay rates
Verify that correct pay rates are being applied for each employee based on their award, classification, and employment type.
Check:
- Confirm base hourly rates match the award/contract
- Check penalty rate calculations are correct
- Verify allowances are being paid where applicable
- Ensure any recent pay increases have been applied
Reconcile leave balances
Verify leave taken and accrued matches the payroll system records.
Check:
- Check leave taken is correctly deducted from balances
- Verify leave accruals are being calculated correctly
- Reconcile annual leave, personal leave, and long service leave
- Confirm leave loading is applied where required
Verify deductions and allowances
Check that all deductions and allowances are correctly applied.
Check:
- Tax withholding (PAYG) is calculated correctly
- Superannuation contributions are correct (currently 11.5%)
- Salary sacrifice arrangements are applied correctly
- Any other deductions (union fees, salary packaging) are accurate
Document and resolve discrepancies
Record any discrepancies found, investigate the cause, and make corrections.
Check:
- Document each discrepancy with details
- Identify the root cause (data entry error, system issue, etc.)
- Make corrections in the payroll system
- Communicate with affected employees if underpaid/overpaid
Payroll reconciliation checklist
Use this checklist to verify each pay run.
Employee data
- Total headcount matches employee list
- New starters are included with correct details
- Terminated employees are removed or final pay processed
Hours
- Total hours match approved timesheets
- Overtime hours are correctly identified
- Penalty rate hours are correctly categorised
Pay rates
- Base rates match award/contract rates
- Penalty rates are calculated correctly
- Allowances are included where applicable
Leave
- Leave taken is correctly recorded
- Leave accruals are accurate
- Leave loading applied where required
Deductions
- PAYG tax is correct
- Superannuation is calculated at correct rate
- Other deductions are accurate
Payroll errors to look for
These are the most common payroll errors and how to catch them. If you use MYOB, their payroll reconciliation guide covers platform-specific steps.
| Error | Impact | Detection | Prevention |
|---|---|---|---|
| Incorrect classification level | Under/overpayment of base rate | Compare employee classification against award rates | Review classifications during onboarding and promotions |
| Missing penalty rates | Underpayment for weekend/public holiday work | Cross-reference roster times with penalty rate calculations | Use rostering software that calculates penalties automatically |
| Incorrect hours entered | Under/overpayment of wages | Compare payroll hours to approved timesheets | Implement digital time capture with manager approval |
| Outdated pay rates | Underpayment (rates usually increase annually) | Check rates against current award pay guides | Update rates promptly when awards change (usually 1 July) |
| Missing allowances | Underpayment of entitlements | Review award for applicable allowances | Document allowance triggers and check regularly |
Reconciliation frequency
Different checks should be done at different intervals. Connect your rostering and payroll integration to reduce the manual effort at each interval.
Each pay run
- Verify hours against timesheets
- Check new starters/leavers
- Spot check pay rates
Monthly
- Full rate reconciliation
- Leave balance review
- Superannuation reconciliation
Quarterly
- Award rate audit
- Classification review
- BAS reconciliation
Annually (EOFY)
- Full payroll audit
- STP finalisation
- Leave liability calculation
Regulatory sources
This guide is aligned with Australian payroll and record-keeping requirements.
How RosterElf helps with payroll reconciliation
Purpose-built tools to make payroll reconciliation faster, easier, and compliant for Australian businesses.
Related guides
More resources for payroll and compliance.
Payroll integration
Automate timesheet exports to your payroll system.
Learn moreAward rates hub
Current pay rates by industry and award.
View ratesPayroll audit guide
Comprehensive process for reviewing payroll accuracy.
Read guideCalculate payroll from timesheets
Work out payroll from approved timesheets accurately.
Read guide
Streamline payroll reconciliation
RosterElf provides detailed timesheet and payroll reports that make reconciliation quick and accurate. Built for Australian small businesses.
Frequently asked questions
- Basic reconciliation (hours vs timesheets) should happen every pay run. More comprehensive reconciliation including rate checks and leave balances should be done monthly. Full audits including classification reviews should be done quarterly or annually. The key is to catch errors before they compound.
- You need: approved timesheets or time records, published rosters, leave records and approvals, employment contracts showing rates and classifications, current award pay guides, superannuation records, and any manual adjustment approvals.
- Reconciliation is an ongoing process of verifying payroll data matches source documents for each pay run. An audit is a more comprehensive review, often done annually, that examines the payroll process itself, checks for systemic issues, and may involve sampling historical records.
- Both. Pre-processing reconciliation catches errors before employees are paid incorrectly. Post-processing reconciliation verifies the final output matches expectations and creates an audit trail. Most errors are cheaper and easier to fix before processing.