Payroll

Xero payroll and STP finalisation, in order

Nikoletta · 29 July 2026 · 6 min

Open Xero and look at your wages payable account. If there is a balance sitting in it that nobody can explain, and you are about to finalise Single Touch Payroll for the year, stop. Finalising before the payroll accounts are reconciled is the most common sequencing mistake we see, and it is entirely avoidable.

Key takeaways

Reconcile the payroll accounts first, then finalise. Not the other way around
A correction made after finalisation lives only in Xero unless you lodge an amended finalisation
Wages coded to expense instead of payable overstates what you spent and hides what you owe
The declaration is a legal statement about year-to-date figures, not a button
Superannuation accrued and superannuation paid are different numbers, and only one of them is deductible

Why the order matters

Single Touch Payroll finalisation is a declaration. When you make it, you are telling the Australian Taxation Office that the year-to-date figures for each employee are correct and final. Your employees then see those figures as their income statement when they go to lodge.

If you finalise first and reconcile afterwards, any correction you make lives only in Xero. The income statement your employee has already seen still shows the figure you declared, and the two now disagree. Fixing that properly means lodging an amended finalisation, which is a second declaration correcting the first, and it is a conversation with an employee who has quite possibly already lodged their return.

The declaration goes in, the underlying accounts were never checked, and the income statement does not match Xero.

Doing it in the other order costs an hour and nobody ever hears about it.

The order that works

Reconcile the wages expense account against your payroll activity summary for the year.
Check that wages payable clears to nil, or to exactly what is genuinely owed at year end.
Reconcile PAYG withheld against what you actually remitted.
Check superannuation accrued against what was paid, and when.
Review terminated employees and any lump sum or termination payments.
Only then finalise.

Each of those is a check against something outside Xero. That is the point. A payroll report that agrees with itself proves nothing, because it is built from the same transactions that might be wrong.

Wages payable is where the errors hide

Wages coded straight to the expense account rather than through payable is the single most common structural error we correct. It overstates what you spent in the period and hides what you still owe.

The pattern to look for is a wages payable balance that never moves. In a file that is working, payable rises when a pay run is posted and clears when the payment leaves the bank. If it holds a constant figure quarter after quarter, something was posted to it once and has never been cleared, or pays are bypassing it entirely.

Two variants worth checking. A pay run posted but never paid leaves a genuine liability, and that is correct. A payment made from the bank and coded directly to wages expense, while the pay run also posted to payable, records the same cost twice and leaves the payable balance stranded.

Superannuation accrued is not superannuation paid

These are two different numbers and the difference matters at year end.

Xero accrues superannuation when the pay run posts. It leaves the accrual when the payment is actually made through the super batch. So the liability account shows what you owe, and the expense shows what you incurred, and neither of them tells you what you have paid.

Reconcile the superannuation liability against the payments that actually left the bank, pay run by pay run. A balance carried at year end is either a genuine accrual, or it is a contribution that was never paid.

Two things decide which. A contribution is deductible in the financial year the fund receives it, not the year you paid it and not the year it accrued, so a payment landing in July belongs to the new year. And since 1 July 2026 super is not a quarterly job at all: under Payday Super a contribution is on time when the fund receives it within seven business days of the payday it relates to, with a longer window for a new employee's first contribution. The rate is 12 per cent, unchanged, but under Payday Super it is calculated on qualifying earnings rather than on ordinary time earnings alone: qualifying earnings also picks up commissions, salary sacrifice contributions and payments to workers under the extended definition of employee. If your process still thinks in quarters, fix that before you finalise anything. There is a fuller walk through in Payday Super and what it changes about your pay run. See Payday Super payment deadlines and how much super to pay at the Australian Taxation Office.

Terminated employees and the awkward cases

Anyone who left during the year still needs their figures right, and they are the people most likely to notice when the numbers are wrong, because they are often lodging early.

Check that each termination was processed as a termination rather than as an ordinary final pay. Employment termination payments, unused leave and any lump sum are reported differently from ordinary earnings, and a termination processed as a normal pay run puts the amounts in the wrong place on the income statement even though the total is right.

Unused leave paid out on termination is reported as unused leave on termination, paid leave type U. Lump sum A carries a type code: R for unused annual leave or leave loading, and for the part of long service leave that accrued from 16 August 1978. Lump sum B is long service leave accrued before that date, and you report the whole amount even though only five per cent of it is taxed. Where any of those are paid you also need a cessation date and reason on the report. See when an employee transfers or leaves at the Australian Taxation Office.

When you have already finalised

It happens, and it is recoverable.

Correct the underlying transaction in the period it belongs to, not the current one.
Re-run the payroll reports and confirm the year-to-date figures are now right.
Lodge an amended finalisation for the affected employees.
Tell the employee, before they find out from their own return.

The last step is the one people skip, and it is the one that matters. An employee who lodged against a figure you have since changed will hear about it from the Australian Taxation Office if they do not hear it from you.

The finalisation declaration is due by 14 July. If you find something afterwards you lodge an update event as soon as possible rather than waiting for next year, and finalised information can be amended for up to five years after the end of the financial year. Tell the employee either way: if they have already lodged against the old figure they may need to amend their return. See finalising your STP data at the Australian Taxation Office.

Get the order right once

If your payroll accounts have never been reconciled and finalisation is coming up, that is a session, not a year of guessing. We work through it on your own file: see Xero payroll support, or Book a Call Today and we will tell you honestly whether it is an hour or a day.

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