Rounding is necessary in payroll for several reasons:
- You can only "pay" an employee to 2 decimal points, as you will not see any more than two decimal places on the list of transactions in your bank account.
- An employee's hourly rate might be calculated from an annual salary figure.
- A pay category can be set to have a rate precision of up to 5 decimal places.
In the pay run
The rounding in the pay run happens when the gross earnings total is calculated. Meaning, all of the employee's earnings lines are totalled and then that figure is rounded to two decimal points.
Note that in this example, the sum of the earnings lines is $819.31968, so this is rounded to $819.32. The rounding method we use is called bankers rounding, which rounds 5 to the nearest even number rather than always rounding up. This is a standard approach that gives a more accurate total when rounding is done across multiple values.
If a calculated gross earnings total is $558.12500 the banker's rounding method will round it to $558.12. But if a calculated gross earnings total is $558.13500, the banker's rounding method will round it to $558.14.
This rounding is necessary because we give users the option to set a pay category to use up to 5 decimal places when calculating employee earnings in the pay run. I.e., the rate precision field is in the pay category settings. Click here for more information on pay category settings.
If you are calculating earnings to 5 decimal places in the pay run then at some point you need to round the earnings down to 2 decimal points. So you can pay your employee's net earnings with two decimal places.
In the Pay Run Journal
The rounding for pay run journals happens on each line. But in the below example, the total earnings figure in the journal will vary (by 1c) from the gross earnings figure in the pay run. So when that happens, the platform will add a 1c balancing entry because the journal has to balance.
By default, the earnings line that we choose to put the 1c balancing entry on in the journal is an earnings line using the employee's Primary Pay Category, as set on the Pay Run Defaults page. If there are no earnings lines using the Primary Pay Category, we will put the 1c against the pay category/earnings line with the highest earnings total, as long as it is not ETP earnings. If there are multiple earnings lines using different pay categories with the equal highest total, one is chosen at random.
Year to date (YTD) figures
On the pay slip YTD figures displayed on the pay slip are rounded once only, at the end of the most recent pay period. Meaning, the YTD figure you see on the pay slip is calculated by totalling up all unrounded earnings lines from all pay runs for the financial year to date for that employee, and then rounding that total to 2 decimal points. So, the rounding on the last pay slip, at the end of the financial year, is the total of all earnings lines for the whole financial year. This is why you'll occasionally see a small variation between the total earnings figure for the financial year in the reports when compared to the YTD figure on the pay slip.
The YTD figure from the pay slip is used on the income statement less the cents, because whole dollars only are accepted by the ATO. This is why you will almost always see a small variation, less than $1, when you reconcile the total of income statements lodged against the Detailed Activity Report for the financial year.
In Reports
Reports and payslips round each earnings line individually - as per the pay run journal method, using bankers rounding. So reports and payslips will show the total of all of the (already rounded) earnings figures from each pay run.
Leave Requests
Bankers rounding rounds to the nearest even number rather than always rounding up. This is a standard approach that provides a more accurate total when rounding multiple values. However, the leave request and balance pages round to 2 decimal places using bankers rounding, i.e., rounding up.
Here is an example of using an employee’s leave balance:
- Accrual (20/06/2024 to 03/07/2024): 3.5384 hours
- Accrual (04/07/2024 to 17/07/2024): 2.47688 hours
- Opening Balance: 251.13 hours
- Balance Total: 257.14528 hours (actual balance)
The leave balances page rounds to 2 decimal places using bankers rounding, so the available balance would be 257.15 hours. If we enter 257.14528 hours into the leave request, it is green because that is the employee's actual balance. Anything above that turns red. If we enter 257.15 hours (displayed balance), the leave request appears as insufficient.