If you answered yes, you should complete a wage reconciliation at the end of each financial year. It is important this is done prior to lodging your Single Touch Payroll (STP) finalisation with the ATO (or issuing your employee PAYG Payment Summaries if you have not yet opted into STP)
Why is a Wage Reconciliation Important?
A wage reconciliation confirms that the figures you’ve reported to the ATO, via your activity statements throughout the year, match the totals in your accounting software for the financial year. This should be completed prior to completing your STP finalisation. Specifically you should check:
- Gross wage and PAYG withholding tax figures reported to the ATO when lodging your year end finalization for STP (or PAYG Payment Summaries / Payment Summary Statement for non STP businesses);
- W1 and W2 figures that you have reported to the tax office on your business activity statements;
- Wage figures reported in your profit and loss statement.
Potential Implications of Unbalanced Wages
If any of the above figures do not agree it could indicate an error in your payroll. An error could have serious implications.
Below are some examples of errors we’ve seen in the past when figures are not cross-checked:
- An employee’s tax was incorrectly under reported – the employee received an unexpected tax bill;
- Bonuses, overtime and annual leave payments were omitted from an employee’s gross wage – the employee understated their income in their tax return;
- Standard employer super contributions incorrectly reported as reportable (RESC) – this saw the employee’s Family Tax Benefit entitlement from Centrelink unnecessarily reduced;
- Wages reported to the ATO were different to actual wages paid – the declaration of wages made to WorkCover was incorrect – this resulted in the business being under-insured.
It is a relatively easy process and involves the following steps:
- ensure all transactions have been allocated and your bank accounts are reconciled up to 30 June;
- ensure your final payroll for the financial year has been processed;
- ensure your wages payable/ payroll clearing account (generally a liability account on balance sheet) has a nil balance at the end of the financial year;
- ensure your PAYG withholding payable account agrees to the amount reported on your June BAS;
- confirm the profit and loss wages expense account equals gross wages to be reported to the ATO and also equals the gross wages shown at W1 on your BASs during the financial year
- confirm the credit entries coded to ledger account for PAYG withheld liability account equals the tax withheld to be reported to the ATO and also equals tax withheld shown at W2 on your BASs during the financial yearNeed Software Specific Guidance? Please see the links below for guidance specific to your software:
Quickbooks – How to create and lodge a Finalisation event
ATO Reporting Deadlines
Just a reminder of the deadlines by which you need to finalise your payroll obligations for the 20/21 financial year:
If using STP:
- finalisation declaration by 14 July 2021
- employers with closely held employees:
- 20 or more employees – finalisation declaration for closely held employees is due 30 September and all other employees is due 14 July
- 19 or fewer employees with ONLY closely held employees – finalisation declaration is due based on the employees income tax return due date.
If NOT yet using STP:
- payment summaries to employees by 14 July 2021
- payments summaries and annual statement to ATO by 14 August 2021
Need Further Assistance?
We help many clients at this time of year with their year-end payroll process, Workcover wage declarations and contractor reporting. Our assistance can range from a short refresher on how to do this correctly yourself right through to taking care of all the reconciliations and lodgements. If you would like assistance to ensure you are meeting all your obligations correctly by the appropriate deadlines please call, SMS or email us.