Getting Started with Xero Payroll (Australia)

Getting Started with Xero Payroll in Australia

Running payroll is one of the most important - and most regulated - parts of employing staff. Get it wrong, and you face penalties from the ATO, underpaid employees, and compliance headaches. Xero Payroll simplifies the process, handling pay calculations, superannuation, Single Touch Payroll (STP) reporting, and leave management.

Setting Up Xero Payroll

Step 1: Enable Payroll

In Xero, navigate to Payroll then Payroll Settings. Confirm your organisation details including:

• ABN
• Legal entity name
• Business address
• PAYG withholding branch number (from your ATO registration)

Step 2: Configure Pay Calendars

A pay calendar defines how often you pay your employees. Go to Payroll Settings then Pay Calendars and create your schedule:

• Weekly - Common for casual and hourly workers
• Fortnightly - The most common frequency in Australia
• Monthly - Common for salaried employees

You can have multiple pay calendars if you pay different groups at different frequencies.

Step 3: Set Up Pay Items

Pay items define the components of each employee's pay. Xero includes default items, but review and customise them:

Earnings: Ordinary hours, overtime, allowances, bonuses, commissions

Deductions: Salary sacrifice, union fees, health insurance

Superannuation: Employer super guarantee (currently 12% as of 2026), salary sacrifice super, additional employer contributions

Leave: Annual leave, personal/sick leave, long service leave, parental leave

Step 4: Add Employees

For each employee, create a detailed record:

Personal details: Name, date of birth, address, email, phone, tax file number, emergency contact

Employment details: Start date, employment type (full-time, part-time, casual), employment basis (permanent, fixed-term)

Pay template: Assign their pay rate, pay calendar, and applicable pay items. Set up their default hours for salaried employees.

Tax details: Tax scale (based on their TFN declaration), HELP debt status, Medicare levy variation

Super details: Nominated super fund, member number, contribution rates

Leave balances: Opening leave balances if they are transferring from another payroll system

Step 5: Connect to the ATO for STP

Single Touch Payroll (STP) reporting is mandatory for all employers in Australia. Xero handles STP automatically - each time you process a pay run, the data is lodged with the ATO.

To set up STP, go to Payroll Settings then Single Touch Payroll and follow the ATO authentication process. You will need your myGovID or Auskey credentials.

Processing a Pay Run

Step 1: Start the Pay Run

Navigate to Payroll then Pay Runs and click "Process Pay Run." Select the pay calendar and pay period.

Step 2: Review Employee Pay

Xero pre-populates each employee's pay based on their template. Review and adjust:

• Hours worked (for hourly employees)
• Any overtime, allowances, or bonuses
• Leave taken during the period
• Any deductions

Step 3: Verify Calculations

Check that gross pay, PAYG withholding, super, and net pay calculations are correct. Xero calculates these automatically based on current ATO tax tables and super rates.

Step 4: Post the Pay Run

Once verified, post the pay run. This:

• Creates journal entries in your general ledger
• Calculates super payable
• Lodges the STP report with the ATO
• Generates pay slips for each employee

Step 5: Pay Your Employees

Xero does not make the actual bank payments (though it integrates with some banks for direct payment processing). Most businesses download the ABA payment file from Xero and upload it to their internet banking to process the batch payment.

Step 6: Distribute Pay Slips

Xero can email pay slips to employees automatically after each pay run, or employees can access their pay slips through the Xero Me app.

Managing Superannuation

Super Guarantee Rate

The super guarantee rate in Australia is 12% of ordinary time earnings as of 2026. Xero automatically calculates super based on this rate (or a higher rate if you have agreed to pay more).

Payment Deadlines

Super must be paid quarterly by the 28th day after the end of each quarter:

• Q1 (Jul-Sep): Due 28 October
• Q2 (Oct-Dec): Due 28 January
• Q3 (Jan-Mar): Due 28 April
• Q4 (Apr-Jun): Due 28 July

Late super payments attract the Super Guarantee Charge, which includes interest and administrative penalties. Pay monthly to avoid last-minute scrambles.

Making Super Payments

Xero integrates with clearing houses (like Beam) to simplify super payments. Set up the connection, review the amounts due, and submit payment through the clearing house, which distributes it to each employee's fund.

Leave Management

Types of Leave

Xero tracks all standard leave types:

• Annual leave - 4 weeks per year for full-time employees
• Personal/sick leave - 10 days per year for full-time employees
• Long service leave - Varies by state (typically 8.67 weeks after 10 years)
• Parental leave - Government-funded paid parental leave scheme

Approving Leave Requests

Employees can request leave through the Xero Me app. Managers review and approve requests, which automatically update the pay run.

Leave Balances

Monitor leave balances regularly. Excessive leave accruals represent a financial liability. Some businesses encourage employees to use leave or implement "use it or lose it" policies (where legally permitted).

STP Finalisation

At the end of each financial year, you need to finalise your STP data. This replaces the old payment summary (group certificate) process.

In Xero, go to Payroll then Single Touch Payroll then STP Finalisation. Review each employee's year-to-date figures, make any adjustments, and submit the finalisation. Employees can then view their income statement through myGov.

The deadline for STP finalisation is 14 July each year.

Tips for Smooth Payroll

1. Process on time, every time - Late pay damages trust and can breach employment law
2. Double-check before posting - Payroll errors are disruptive for everyone
3. Keep employee records current - Tax declarations, super fund details, and personal information should be up to date
4. Set reminders for super deadlines - Late super is expensive
5. Back up your payroll data - Xero handles this in the cloud, but export records periodically as an extra precaution
6. Stay updated on rates - Minimum wage, super rates, and tax tables change annually. Xero updates automatically, but verify at the start of each financial year

Payroll is a critical responsibility. Xero Payroll makes it manageable, but you still need to understand the obligations and check that everything is running correctly. When in doubt, consult your accountant or a payroll specialist.