Xero Payroll Basics

Payroll is the part of Xero where errors travel furthest. Every pay run flows into employee pay, superannuation, PAYG withholding, the BAS and Single Touch Payroll reporting to the ATO — so a wrong setting does not stay a small mistake, it repeats itself every payday until someone notices.

Setup decides everything

Most payroll problems are inherited from setup. Pay calendars determine when pay runs happen and which periods they cover. Each employee record carries tax details, super fund membership and leave entitlements, and each of these feeds calculations automatically from then on. Time spent checking these against the employee's paperwork before the first pay run is the cheapest payroll work you will ever do. Whether directors are paid wages through payroll or take drawings is another decision worth settling early, because unwinding it mid-year is painful.

Pay items and where they post

Every pay item — ordinary hours, overtime, allowances, leave, deductions — carries a mapping to an account in your chart, plus a reporting category for Single Touch Payroll. Both mappings matter.

On the accounts side, the trap we see most is superannuation: the expense posts correctly but the liability accrues to the wrong account, so the balance sheet shows super owing that was actually paid, or hides super that was not. On the reporting side, STP Phase 2 requires earnings to be broken down by type, so an allowance bundled into ordinary hours is reported wrongly to the ATO even though the employee's take-home pay looks fine.

Filing pay runs to the ATO

Under Single Touch Payroll, each pay run must be filed with the ATO on or before payday, and Xero shows a filing status against every pay run. Filed means accepted; pending or failed means follow up, because a failed filing does not fix itself. At the end of the financial year, an STP finalisation replaces the old payment summaries — it is generally due by the 14th July, but check the current ATO deadline for your circumstances.

Superannuation is accrued, not paid

Xero calculates super each pay run, but calculating is not paying. Payment is a separate step, whether through Xero's automatic super feature or directly with the fund. The deadlines are strict, and super paid late generally loses its tax deduction, so this is not a corner worth cutting. The guarantee rate has changed several times in recent years, and the rules on how quickly super must reach the fund after payday are changing too, so check the current ATO figure and timing rules rather than relying on memory.

What if I made a mistake in a pay run that was already filed?

Fix it in Xero with an unscheduled pay run or by reverting and reposting, then file again. STP corrections flow to the ATO through the next filing, so the record catches up.

Do I really have to file every pay run?

Yes. Single Touch Payroll requires filing on or before each payday, and Xero shows the status so you can confirm each one was accepted.

When is super actually due?

Historically within a set period after each quarter ends, but the timing rules are changing, so check the current ATO guidance rather than assuming the old deadline still applies.