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Before you start using payroll
it's essential to configure the payroll settings to match your business
and tax requirements, so everything runs smoothly. First make sure you have a Xero
user role with 'Payroll Admin' access.
Only those that have 'Manage User' permissions
can grant payroll admin access to themselves or other users.
You can even set up a payroll administrator
with the user role of 'None' and just get them payroll admin rights.
This means they can run payroll for your business but not have access to anything
else in Xero
like the financials, as we see here. Otherwise you can give your payroll
administrator access to the rest of Xero as well.
The first time you go to payroll you'll need to click on the 'Payroll' button
and this will now make payroll menus fully available.
You find payroll settings under the settings menu
or you can simply click on this link in the 'Getting Started' section
the payroll overview page. Then just work your way through the tabs
starting with 'Organization'. Under 'Payroll Accounts'
select the appropriate account for the bank, wages payable,
and expense account. 'Payroll Tracking Categories'
there's none to choose from here at the moment but that's because we haven't set up
any tracking categories yet in our main general settings.
So to understand what we're looking at here let's digress a moment
and look at tracking categories in settings. We'll create one called
'Department'
and then we'll put in a few options which we'll be able to select from later.
And let's create another category called 'Region'
and enter a few options for this one too. If we look back to where we were in
payroll settings
we now have categories to select from for both employees group
and timesheets. In this scenario when I create an employee
I'll be able to sign them to an employee group (like sales, consultancy,
design) or whatever options I've added to this track in category called
Department.
And when staff are entering timesheets
they'll be able to categorize their time by region. Using tracking categories for
payroll
allows us to slice and dice our reporting so we can carry out helpful
analysis later on.
'Opening Balances' is where we select the quarter start date
that you want to begin to account for your payroll in Xero.
We'll set this to October 1st. If you are already part way through a quarter
you'll still want to start from the beginning of it. The end result
that we want to achieve is for all your first quarter filing information to
be captured in Xero.
Let's move on to 'Paystubs' next. This is where you can customize your check
template.
Tick what you want included and tweak the x/y coordinates to place things where
they need to be on the check.
You can also choose what info to include or exclude from the pay stub. Here's an
example of a check that need some tweaking
you can see the amount is slightly over the pre-printed dollar sign on the check form
and the company name is overlapping where the logo is on the check
all we need to do is nudge the company name and amounts fields over a bit
to fix the problem. We can do that by adjusting the x coordinates for those
two fields.
Increasing the values by 72 points will move those problems fields
over in an inch. And then print out another sample of your pay stub
and as you can see that's fix the problem for us. Everything is nicely
lined up
where should be. The next tab is where we set up 'Pay Items'.
Under 'Earnings' let's go ahead and add an earning type. Let's say you have sales
staff who get paid commission.
We'll call it 'Senior Sales Commission'. We'll leave
amount blank for now and link this to its own wages expense account
so we can report and account for this separately on the income statement.
'Benefits' are the employer paid portion
things like health insurance, life insurance, or a 401 K match.
You can choose which one from a pre-populated list.
This will probably have a bearing on tax liabilities
so choose the appropriate liability and expense accounts.
And you can opt to show this on the pay stub if you want to make that visible to
your staff.
Moving onto 'Deductions' maybe you've had to advance alone to staff member
and your deducting it from their pay. This would be to be deducted after-tax
some deductions will allow you to enter a standard amount
and govern it with a maximum amount allowed to be deducted
over the course of the calendar year. If you don't enter an amount here
then Xero will resort to the limit imposed by the Tax Office if
that's applicable. Or perhaps your deducting pay to put into a retirement
plan on their behalf.
Hover on the question mark to pull up a more detailed explanation
of standard and catch up plans. But always be sure to consult the plan
administrator if you're not sure.
'Reimbursements' are next, for example you might be reimbursing certain items
through payroll like mileage.
'Time Off' is where we can add in the different types of leave employees take in your
organization:
holidays, unpaid leave, sick leave paid or unpaid,
it's simply a case a giving it a name and selecting if it's paid or not.
If it's paid time off then you need to select the expense account
for when the employee uses the leave and the liability account for the leave accural.
If it's appropriate to display the balance on the pay stub just tick the box.
And that's our Pay Items tab complete. Next, 'Work Locations' is where you can add
in all the locations
your staff permanently work from. The smart address lookup will save you a lot
of hassle.
Xero fills in the rest at the details for you so no time is wasted hunting around
for ZIP Codes.
'Schedules' is where you can set up unique pay cycles like weekly,
semi-monthly, monthly, etc. In this example
staff are paid semi-monthly. After selecting the start date,
the last date in the first pay period will automatically
be displayed for you here.
Onto taxes. Here will complete your details for Federal and State tax.
First, federal filing and deposit requirements.
The IRS will default new businesses to monthly but the IRS assigns different
requirements to different employers,
if you're unsure about this then by all means contact the IRS
so you know what requirements are applicable for your organization.
Tax Accounts are you default linked liability, and expense accounts for Federal
Employment
and Unemployment taxes. State tax
the information you need to provide here will vary from state to state.
Wherever you see the info icon you can hover over it for more information.
That brings us to 'Electronic Services' where you can complete a registration
to enable direct deposits to employees from your business bank account.
You just need to ensure your company information is correct,
and provide the contact details for the authorized signatory or principle for
the bank account.
And of course the actual bank details themselves.
And that's payroll settings complete. You're now ready to add employees
and start processing pay runs.