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Is Xero Payroll Any Good?

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The answer is: It depends. I use Xero Payroll myself in my own business, and I sometimes recommend it, and sometimes not. Here is what you need to know about it and whether it will be good for your specific business.


  • Cheap
  • User friendly
  • Separates Holiday Pay from Annual Leave, as per NZ legislation, which in my view makes it easier to understand
  • Handles both non-GST and GST registered contractors, and withholding tax within the same system
How much is Xero Payroll per month?

Xero Payroll costs $10 a month for the first employee, and a measly $1.00 per month for every employee after that, making it one of the most cost efficient systems on offer in New Zealand.

Is Xero Payroll easy to use?

Yes, it has a very friendly user interface, just like the rest of Xero. It also provides a user friendly app for employees where they can enter timesheets and apply for leave.

Stuff to be aware of

Xero Payroll is not full service

That means there is no live help desk who you can phone up and ask questions. Just like normal Xero, you can log a support ticket and get email support, and will only call you if all else fails. Support is limited to how to use the software, rather than being able to get general advice on how to apply legislation. This is the most common feedback I hear from users who are struggling with it – they have general questions about how much and what to pay and want to discuss this with someone.

Xero Payroll is not a Payroll Intermediary

In New Zealand some payroll providers are “intermediaries”. Xero Payroll is not. An Intermediary can pay your staff on your behalf, and also take responsibility for paying IRD. Using an intermediary means you press the button to finalise the pay, and the payroll provider does the rest – including taking responsibility for ensuring IRD filings are made correctly and on-time. With Xero Payroll, you still need to pay your staff, and pay IRD on 20th of the following month – and you are responsible for ensuring payments to IRD are correct and made on time.

Annual Leave and Sick Leave is held in hours

In NZ, Annual Leave and Sick Leave is accrued in Days / Weeks, not hours. Xero Payroll however keeps these leave balances in hours. Sometimes it’s an easy conversion, such as for Salaried staff, but in particular with Part-time Flexible staff, this is a common cause of confusion and errors. The most common errors I get involved with are when Annual Leave balances are shown to be incorrect, and Annual Leave has not been paid out at the correct rate. I’ve written a blog about dealing with Annual Leave for part-time flexible staff.

Potential for hidden errors

There are some situations with payroll (not just Xero) where manual adjustments are needed. But there may be no warning or notification about this, leading to these adjustments getting missed. The most common missed adjustment is changing the number of hours representing Annual Leave or Sick Leave when an employee changes their standard hours. This may not come to light until months or years later.

Employees need to be reloaded for a new contract

Strangely, if an employee changes their terms of employment from Casual to Permanent, they need to be reloaded in Xero Payroll as a new employee. One reason is that Xero Payroll doesn’t have any flexibility to control Leave Accrual dates.

So, is Xero Payroll any good for you?

I might recommend it if the following conditions apply:

  • Employees are on regular hours
  • The administrator has a good understanding of Payroll Legislation
  • The business has some kind of support to have payroll questions answered
  • There are no more than 20 employees

But if this is not the situation, I generally recommend businesses to invest in a full service intermediary payroll system. My favourite is iPayroll. Why?

  • There is a real person to talk to when you need it
  • They help you sort out any issues rather than just giving you technical instructions on how to sort it yourself
  • iPayroll will remind you if you forget to run your pay
  • You will never be paying IRD penalties for late filing

Yes, it’s more expensive than Xero Payroll. But you won’t be paying someone like me to sort out messes that might only be discovered years later.

Yes, I am an iPayroll Partner, and I do receive a small trailing commission on referrals (if I call them before you do!), but that’s not why I often recommend them. Frankly, errors in payroll have the potential to be very expensive, both in IRD penalties and creating crippling employee grievances. My view is – why take the risk?

Sorting out Xero Payroll messes is one of my specialities, and the Living Business team run payroll on Xero / iPayroll / SmartPayroll. Find me at for a chat about whether Xero Payroll might be good for your business.