Running a Payroll on Xero

Posted 26/09/2019

Not only does Xero offer bookkeeping services through its online software, there is an option to add a payroll chunk to the subscription for the business. Payroll settings can be adjusted through the regular settings on Xero and a first review of these settings is advised when starting the payroll system. Xero automatically posts payroll figures into the bookkeeping system once a pay run has been processed using automatic category codes which can be viewed by the settings option and should be checked to ensure the postings are correct.

Xero has a feature called My Payroll for employees. By entering an email address, employees will be invited to view all previous payslips and pay details, submit timesheets and request days off. Employees will not be able to edit their details or submit payroll reports to HMRC.

Once the payroll settings have been checked the employees can be added to Xero. This is found under the Payroll tab at the top, aptly named ‘Employees’. To add an employee after the 5th April and had worked in a previous employment a P45 will be required. A P45 contains most of the relevant information that Xero asks for; email addresses and telephone numbers are not included and are optional fields to fill.
Clicking within the employee’s name once created will open multiple tabs of information that need to be completed before a pay run will be prepared. These tabs contain the current employment contract information, pension details and tax coding updates which will be used in calculating the tax due to HMRC each pay run.

To run the payroll the ‘pay employees’ must be chosen under the payroll tab. The type of pay run – weekly, fortnightly, monthly – can be chosen and any employees that fall into that category will have a default calculation made up as a draft using the pay template. Any changes must be made before ‘post’ if there are any one-off adjustments for a period. The pay is calculated based on the annual salary or hourly rate, depending on the selection chosen when filling out the information for the employee. Xero will also detect if auto-enrolment is necessary for your employees and prompt you to set this up when necessary.

Once a pay run has been completed, a payslip will be printable from Xero if the employee does not use My Payroll to view the summary. At the end of the UK tax year a P60 will be generated for each employee which can also be printed out and stored on My Payroll. To generate the P60, the ‘download PAYE reports’ drop-down list on Employees will give the option to create this form.

The holiday setting in payroll settings are important to check, as each area of England and Wales, Scotland and Northern Ireland have slightly different holiday dates from each other. The holiday calendar is used by all employees in the company and is not determined by residence of the employees.

Tags: Xero, Payroll, PAYE, Software


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