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Xero Payroll – Rescue Mission!

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Xero Payroll – Rescue Missions!

Living Business is a Payroll Specialist – and Xero Payroll is one of our specialities.  We continue to help businesses sort out issues that have quietly been happening in the background, and it’s only months or years later then it’s realised there is an issue.  Often it’s when an employee ends employment, or the terms of employment change.

I do love Xero Payroll, it works in a different way to most others out there – but once you get it, it really makes sense.

So, here’s just a select few of things we come across that are tripping up the novice (and not so novice…)

  1. The Xero Payroll organisation start date is the date Xero Payroll is going to be used from – not the start date of when the business started, or when the first employee started. It’s a pain if you get this wrong because you can’t change it – you need to invite in Xero Support and they have to manually change it.  You also need to unwind and cancel any open payrolls you might have started.
  2. Xero Payroll does not allow you to change Pay Calendar details. If you want to change your Pay Calendar for any employee, you need to first Create a New Calendar, then move your employee from the old to the new calendar.  You will then find you can delete the old calendar if no-one is allocated to it.
  3. For the annual leave rates to calculate correctly you need to enter in the employees “Opening Balances” – this is up to 12 months employment history. Don’t put in a summary, it doesn’t work.
  4. Xero shows Annual Leave and Holiday Pay in a different way to most other payroll systems. I like it because it reflects the legislation.  Annual leave is only allocated after 12 months employment.  Prior to that, you will see Holiday Pay accumulating.  Holiday Pay is a $ amount and is generally 8% of the gross pay.   Once the 12 month mark is reached then the Holiday Pay $ amount will cancel itself out and transfer into Annual Leave in hours.
  5. If paid leave is taken before it has been earned (before 12 months), this will push the Annual Leave total showing into a negative number. You cannot allocate Holiday Pay to be paid out (as per legislation) and the Holiday Pay $ amount will continue to accumulate.  If you want to see the overall approximate leave balance go into the leave tab of the employee and tick the box  “Show AL taken in Advance”.  This will combine AL and Holiday Pay together for an approximate balance, as many other Payroll systems also do.  In my view though it’s important to remember that Holiday Pay is Not Annual Leave and to understand the difference.   Also, the approximation may not be accurate under some circumstances.
  6. Xero records Annual Leave in Hours, rather than Days/Weeks. The legislation is Days/Weeks.So the set up in Xero Payroll in number of hours per day and days per week is really important to get right, and to understand the implications.  If standard hours change, then most likely there will need to be a manual adjustment to the Annual Leave balance.  This is one of the most common errors we see- hours changing and no adjustment being made.
  7. Flexible hours can be an issue with Xero Payroll if it’s not understood.  Xero’s recommendation in this situation is to enter Minimum hours, and then allow Xero to raise the payment rate as required when AL is paid out.  AL will be paid out at the very least based on the minimum hours but will be increased if more hours are worked.  For example, you could represent employee hours in Xero as 1 hour a day 5 days a week, which would show in Xero as 20 hours a year due for AL.  Then if that employee actually ended up working an average of 15 hours a week (three times the amount), every time they take a day off it would be recorded in Xero as just 1 hour (the minimum representation), and the rate that the day was paid out, would come up to 3 times the normal hourly rate.  It is correct, but can be confusing.

It’s worth sorting, and Xero Payroll is all good once it’s set up correctly.  We are happy to help you fix it.

The main symptom indicating there could be an issue is that the AL looks wrong.

If you are interested in this or our Xero software setup or Xero training, please get in touch with us.