The Xero payroll is a powerful tool to minimise the time it takes to manage payments to your team as well as superannuation. To get the most out of it, it needs to be set up in the best way. When we convert clients from a different accounting system, we set up the payroll with the settings from the old system, but often find that information is missing. So reviewing payroll settings is essential. Here is how to get the most out of it.
Review Your Payroll Settings
- Go to the settings tab
- Select general settings
- Select payroll settings
In the first tab review your bank account and to which accounts your payroll items are being coded. If you are using tracking categories select the appropriate employee group and timesheet category. We sometimes find that there is an expense account set up for each employee or that each payment type is booked to a different account. This often clutters a Chart of Accounts and makes the reporting less useful. There are other reports that can show the costs by employee.
Make sure that the bank account is chosen that you actually pay your employees from.
In the payslip tab add your logo and select what details you want to show on the payslips.
It is best to have the fewest possible pay items while complying with any awards you might fall under. We often find multiple pay items that all have the same settings. They should all be combined into one. There is no need to differentiate between hourly pay items or salaried pay items. You can actually use the same pay item and select how you pay an employee when you choose the pay item in the pay template (see below).
In the pay items tab review the setup of your payroll items, here you can also add new items or edit items you have.
When we convert clients from a different accounting system, opening balances are added to show what has been paid to employees through the old accounting system. It allows you to create correct payments summaries from Xero and makes sure the payslips show correct YTD figures. In these opening balances we also need to Leave pay. It is only for that reason we create leave pay items. Otherwise there is no need for leave pay items (please see below).
The payroll calendar defines how often your employees are paid and for which timeframes. To be efficient, it is best to pay all your employees in the same frequency and on the same day. Where that is not possible, you can add multiple payroll calendars.
In the calender tab you can view your payroll calenders, if you need to add a new calender make sure that the start date is the first day in the pay cycle and the payment date is when the payment is done to your employees. Each employee has to be linked to a calender and if you need to change calender on an employee go to the employee and add the changes in their setup.
Xero forces you to accurately enter super details for your own good. As you might be aware, the Xero Large subscription includes an automated super payment option where all it takes is a click of a button and have Xero automatically report to all super funds for all your employees. For that to work, the super settings are essential. If you manage the super reporting yourself, accurate settings in Xero will also simplify that.
Xero includes a list of all Australian super funds (regulated). You can often find them by name, but if you are uncertain, you will need the SPIN number. Self managed funds can be entered with all bank details and reporting is handled for them as well.
In the superannuation tab you find all the superfunds that you have setup for your employees. You can add new funds both self managed and regulated super funds. If you need to change any superfund details on an employee first add the super fund in this tab and then go to the employee to edit their setup.
Review Your Employees And Add New Employees
- Go to the payroll tab
- Select employees
In the first tab please view all your employees by status (you can add a new employee here). It is very important to review the setup of your employees, this gives you the chance to add any missing details for each employee. Select your first active employee and go through all the tabs in the settings.
For conversions we often find employees that have no termination date even though they are not paid any more. That means they will show up in this list and you need to enter the correct termination date, so that they do not clutter up your list and payruns.
Review the details on your employee. It is essential to add an email address so you can automatically send payslips to your employees when the payrun has been created. It is also useful to update address details.
In the employment tab review the details and make sure that your employee has a start date, payroll calender, a superannuation membership and an ordinary earnings rate. Add the other details if applicable.
The tax declaration tab is important for your employees setup and how PAYG etc is calculated. It is best to compare that to the original TFN declaration that you should have on file for each employee. Add any missing details ASAP and make sure the relevant boxes are ticked. This is another good area to get support from your bookkeeper or accountant for, because getting this wrong might lead to you having to backpay taxes on behalf of your employee.
In the leave tab you can view your employees leave balances and add leave applications.
Please read more about how the leave tab works and how to give your employees access to Xero. There is a detailed descirption of how to use that in Leave in Xero/Invite employees to Xero.
Review the bank account setup on your employee. To make the most of Xero, make sure the bank account details are entered and correct. Then you will be able to create an ABA file and upload to your bank, rather than having to enter the employee payments manually into your bank portal. If you still pay an employee by cheque, ask them to join the 21 century.
The Pay Template
The pay template is the biggest time saver of all. You want to set it up to minimise the work during payruns. All pay items that you might need to use should be in here. If there are standard hours, or stadard amounts for allowances you should add them. Whatever is in here will be used to pre-fill your payrun. You are then completely free to change anything. But obviously you want to minimise the need for that.
When you add a pay item, you can select whether you pay for it via an hourly rate or an annual salary.
Review your employees’ pay templates, add or edit any items that you want appearing automatically on your employee when creating a pay run.
The opening balance tab is reflecting what has been paid from the beginning of your financial year to the last pay run created in the old accounting software. It is here that we use the Leave pay items. Please note which date the opening balances are for. The first payrun for this employee should be set for the period immediately after that date.
We also recommend signing up for the free Xero training for payroll.
Have fun with using payroll in Xero!