This guide provides a high-level overview of how payroll information flows into your accounting system. It explains the core components of payroll costing, how SmoothPay groups and allocates payroll expenses, and how journals are produced for posting to your ledger. Use this article as a conceptual starting point before completing the setup and processing steps in the detailed guides that follow.
How payroll accounting works in SmoothPay
SmoothPay produces accounting outputs based on three key components:
Cost centres and tracking codes
These determine where payroll expenses are allocated in your chart of accounts, including optional departments, job codes and activity codes.Posting method and accounting integration
These control how payroll data is delivered to your accounting system, either through API or via a downloadable costing file.Costing analysis and posting
This produces a per employee breakdown of the costing based on a completed pay process. It is also when posting a journal to an accounting package takes place
Each payrun calculates employee wages, allowances, leave and employer costs, allocates them to the correct expense and liability accounts, and prepares a journal that can be posted once the pay is finalised.
Core components of the payroll accounting flow
1. Cost centres (accounts) and tracking structure
Cost centres are the primary way payroll costs are mapped to your chart of accounts.
Optional tracking structures provide additional breakdowns:
Departments — high-level grouping
Job codes — project or job-based costing (e.g. Xero Tracking 1)
Activities — task-level costing (e.g. Xero Tracking 2)
Tracking codes can be set:
At the company level (defaults)
At the employee level
Per transaction during the payrun
For setup instructions, see Setting up and using cost centres.
2. Accounting integration and posting method
Your accounting setup determines how journals are delivered:
Automatic — posted directly via API to your accounting package
Costing File — generates a file (commonly glcosting.txt) for import
Other supported formats — depending on your selected ledger type
For detailed setup, see Setting up accounting integration.
3. Costing and journal outputs
Once a payrun is completed, SmoothPay produces accounting outputs summarising:
Gross wages
Allowances
Leave
Employer superannuation (if enabled)
Tax and super liabilities
Other deductions and agency payments
Net pay movements
This is produced by running the Cost centre analysis (batch) report
For details on how to run and export costing reports, see Costing analysis and exports.
How your accounting setup affects payroll processing
Once your costing structure and integration method are configured:
All payrun transactions will automatically allocate to the correct accounts
Any overrides applied during a payrun will flow through to the journal
Your chosen posting method determines whether the journal is posted directly or exported from the Files screen
SmoothPay does not require any end-of-year rollover or accounting period resets — all accounting reports remain accessible at any time.
Where to go next
To complete your payroll accounting setup, continue in this order:
Setting up and using cost centres (company defaults, tracking structure)
Setting up accounting integration (ledger type, posting method)
Overhead accounting (optional employer on-costs)
Costing analysis and exports (producing and posting journals)