Xero has made it easy to add new employees to payroll. In the following guide, I will show you how to add an employee to payroll in the Australian version of Xero’ demo company.
This guide assumes that you have already completed the payroll settings necessary to successfully add employees to your Xero account. These setting include payroll calendars, superannuation funds and holiday groups.
How to Add an Employee
To get the process underway, navigate to the Employees section of Xero by going to Payroll → Employees in the main menu:
Once you are there, press the Add Employee button on the top right hand side of the screen:
This will take you to a tab where you will begin adding the details of your new employee.
The Details tab allows you to add personal details of your new employee, such as their name and contact details. As you can see in the image below, I have filled in all the compulsory fields and some of the optional fields for a new employee named Darren Brown:
Once you have added all necessary information into the Details tab, press the Save button to be taken to the next screen.
Adding the Employee’s Detailed Information
The next screen allows you to add all kinds of information about your new employee. The screen contains a number of tabs, including; Taxes, Leave and Bank Accounts. These tabs allow you to enter all the information you need to be able to pay your new employee correctly. Some of the information is compulsory and some is optional.
Once you have completed each tab, be sure to save your work before moving on to the next tab.
The Employment tab allows you to enter basic information about your new employee, such as:
- Start Date: the date on which your employee began working for you.
- Classification: this is a non-compulsory setting for the award classification of your employee if they are under an award scheme.
- Payroll Calendar: the payroll calendar – such as weekly or fortnightly – that your employee will included in.
- Employee Group: this is a non-compulsory setting used for management reporting.
- Holiday Group: the holiday calendar for the state or territory that applies to the employee.
- Ordinary Earnings Rate: this will almost always be Ordinary Hours.
- Authorised to Approve Leave: tick this if the employee is allowed to approve leave.
- Authorised to Approve Timesheets: tick this if the employee is allowed to approve timesheets.
The last piece of information to include in the Employment tab is for superannuation. Pressing the + Add a super membership button opens a screen that allows you to enter the Fund name and Employee Number of your employee’s super fund:
When you have completed this step, press OK to return to the Employment tab.
Once you have finished adding all necessary information on this tab, press Save before clicking on the Taxes tab.
The Taxes tab allows you to enter the following information for your new employee:
- Either a Tax File Number (TFN) or a TFN Exemption.
- Employment Basis: usually full-time, part-time or casual.
- Residency Status: usually Australian, foreign or a working holiday maker.
- Tax Free Threshold Claimed: tick this box if the employee is not using the tax free threshold at another job.
- HECS or HELP Debt: tick this if your employee has an education debt with the government.
- Other: tick any other boxes if appropriate for your employee.
Once you have entered all necessary information, you can send the Tax Declaration to the Australian Tax Office (ATO) by pressing the File Now button. Xero has set up electronic Tax Declaration filing to save you the hassle of filling in and sending paper forms to the ATO.
I have circled the File Now button in the screenshot below. The button is inactive in the Demo Company, which is why it is coloured grey. In your live account the button will be active and coloured green.
If you do not want to send a Tax Declaration to the ATO for your new employee, do not press the press File Now button. Instead, press the Save Only button before moving on to the Leave tab.
When you click on the Leave tab, you will see leave types, accrued leave balances and leave requests for the employee. For a new employee, there will be nothing to display, so the screen will look like the image below:
Your new employee will be entitled to a few different types of leave, most likely Annual Leave and Personal/Carer’s Leave. In Xero, there are two ways you can add leave types for new employees:
Assign Default Leave Types
If you press the Assign Default Leave Types button, Xero will automatically populate leave types and opening leave balances for your employee based on their employment type, such as full-time or part-time.
If I choose this option for the employee I am setting up in this tutorial , Xero assigns Annual Leave and Personal/Carer’s Leave with opening balances of 0 hours for each. This is because my new employee is employed on a full-time basis and has just started working for the Demo Company:
Assign Leave Types
Another way of assigning leave types and balances is to do it manually. You can do this by pressing the Assign Leave Types button. A screen will pop up that allows you to enter information such as:
- Leave: the type of leave, such as annual leave.
- Leave Calculation Method: how the leave will be calculated.
- Hours Accrued Annually: the number you enter will be divided into each week of the year.
- Opening Balance: any accrued leave hours owed to your new employee.
- On Termination: whether accrued annual leave will be paid out if your employee’s employment is terminated.
Once you have finished entering information into the popup window, press Save to get back to the Leave tab.
There is no Save button on the Leave tab so you can move on to the Bank Accounts tab as soon as you are finished setting up your new employee’s leave types.
Bank Accounts Tab
No doubt you pay your staff electronically directly into their bank accounts. This tab is where you enter the details of the bank accounts your new employee wants to be paid into.
While this is a fairly straightforward tab, one thing to note is that some of your employees may want to split their pay and send it to several different bank accounts. Xero recognises this and allows for up to four bank accounts per employee. To enter more than one bank account, click on the Add Another Bank Account link on the left hand side of the screen.
The details you need to enter for each bank account are:
- Statement Text: this is the text that will appear on the employee’s bank statement.
- Account Name: the name of the employee’s bank account e.g. Everyday Account or Savings Account.
- BSB Number: the six digit Bank State Branch number for Australian bank accounts.
- Account Number: the unique number for the bank account.
- Dollar Amount: if there is more than one bank account, enter the amount that should be paid into this account each pay run. The balance will be paid into the Primary Bank Account.
Once you have completed this tab, press Save to ensure you do not lose any information before clicking on the Payslips tab.
The Payslips tab shows the payslip history of the employee. Payslips are saved here each time you process a pay run. For a new employee, this tab will be empty:
There is nothing to enter here when setting up a new employee so you can move straight on to the Pay Template tab.
Pay Template Tab
The template you set up in this tab for your new employee will be used to calculate their pay each time you process a pay run. It is important to set up this template accurately, otherwise your employee may not be paid correctly.
To complete the Pay Template tab, click on the buttons on the left hand side of the screen and fill in the necessary information:
For my new employee, I have added information in three of the four sections. Each time a pay run is processed, my new employee will be paid:
- For 40 Ordinary Hours of work at $60.00 dollars an hour.
- Minus a deduction of $10 dollars for union fees.
- For Superannuation at the statutory rate.
Once you have filled in all necessary information for your new employee, press Save before clicking on the Opening Balances tab.
Opening Balances Tab
If you are starting with Xero in the middle of a financial year, or you are converting from another payroll system, you must enter the payroll balances for each employee in the Opening Balances tab. This includes balances for their earnings, deductions, tax paid and more.
Similarly, if you are setting up a new employee in payroll, you should enter the year-to-date payroll balances they have accrued from their other jobs. This will help Xero accurately calculate the amount of tax that applies to your new employee each time you process a pay run.
Once you have completed this tab, press Save to ensure you do not lose your information before clicking on the Notes tab.
The final tab to complete when setting up a new employee in Xero is the Notes tab. Here you can add whatever notes you like for your new employee by pressing the Add New Note button:
There is no compulsory information to complete on this tab so you can leave it blank if you like.