If your Wages/Salaries Expense in your P and L is around twice as high as you are expecting, this is likely a coding error. When reconciling the bank statement line/s of wages being paid to employees, this should be coded to “Wages Payable” , not the Wages/Salaries Expense account. Here’s why.
When you process a payrun in Xero Payroll, it creates a transaction (Journal) within Xero. The basic structure is here – just as an overall summary.
|Wages/Salaries Expense||Gross Amount including all taxes etc||Dr.|
|Wages Payable||Net amount to be paid to employees when you get around to paying them today or in the future, or even in the past.. this is a Current Liability||Cr.|
|PAYE Payable||Net amount to be paid to IRD due 20th of the following month.||Cr.|
This Xero journal accounts for the cost of Wages/Salaries into your P and L.
Then, when you reconcile the wages you have paid your employees, whenever that was, it’s Wages Payable.
|Wages Payable||Net amount paid to employees – cancelling the Current Liability because you have now made the physical payment.||Dr|
Then when you reconcile the IRD payment made by 20th of the following month, it’s PAYE Payable.
|PAYE Payable||Net amount paid to IRD due 20th of the following month – cancelling the Current Liability because you have now made the physical payment.||Dr.|
It’s a good idea to run an Account Transaction report on Wages Payable and PAYE Payable and check that the transactions are being credited out.
Of course there are other transactions going on as well including Kiwisaver, perhaps employee debt repayments, child support, fines, but the principle is the same.
If you’re looking to make Xero work for you, please get in touch with us. We love helping small businesses figure out creative ways to get Xero working the best it can. More time doing business – less time on admin!