Hi alect,

That's correct - the advance recorded in the pay run will journal to your Payroll Clearing account and balance against the bank transaction. As an example:

You record an advance of $50 on a pay run and transfer this from yours to your employee's bank account. The $50 will be recorded as paid to the employee in the pay run, journal to the selected account (in your case the Payroll Clearing) and increase the balance (as it's a liability account). The bank transaction itself, once categorised to the Payroll Clearing account, will then offset that amount by decreasing the balance.

Similarly, if you were to deduct the amount from the employee's wages in the future (let's say they earn $150 and you deduct the $50, making your total payment to them $100), when you record this in the pay run the $100 will journal to Payroll Clearing, and your bank transaction will offset this amount as well. 

-Kass