Xero: Adding Staff to Payroll

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Xero offers a payroll service for a monthly fee. This will allow you to run your payroll yourself. It is advised that if you ever have any queries about what to do in certain circumstances (e.g. annual leave, sick leave, parental leave) that you consult an expert if you are unable to find the information out through your own learning.

To add staff to payroll, you will first need to select the payroll option from the bar at the top and then select Employees from the drop down menu.

This will then bring up an employees screen. It is possible that it might give you an error message such as this the first time you try to add an employee. If you get this, you will need to either click the Pay Calendars button here or go into Payroll > Overview > Pay Calendars and then add a pay calendar. This should only need to be done once if you are paying staff on a regular basis.

Once that is resolved, you should get a screen such as this:

You can then click on the Blue Add Employee button which gives you an Add New or Bulk Upload option. For simplicity, we will use the manual option. You will then get a screen such as this.

This should all be self-explanatory except for the Off-payroll worker. Leave this unticked unless you know for sure that they are an off-payroll worker. This is to capture employees who fall under the IR35 legislation. If you need to check this, please consult the HMRC documentation or an expert.

Once you have added these details, you will then be able to add an e-mail address which will allow you to invite them to the My Payroll system if you wish to that will allow employees to submit leave requests and time sheets and to be able to view their payslips.

After this you will need to follow through a series of screens. This will involve entering information that you will need to have gathered from your new starter as well as decisions that you will have made as an employer. For the below, the Employee Group will only be used if you are wanting Xero to be able to report on your payroll costs by an employee’s department, role, project etc. If you are happy for all salaries to be grouped together then this can be kept as none.

Most staff will be in the national insurance category A, but it will be worth checking out the HMRC National Insurance Guide for each new staff member as employees under 21, apprentices, those past state pension age or those paying National Insurance in another job will have a different letter.

Entering salary and wages is a necessity to continue. The regular earnings type allows you to classify their earnings in a different place in Xero’s accounts if you want to. This will need to be set up in advance. You can then choose annual salary or hourly rate. You will be required to enter standard hours per week. You can enter zero hours if required.

The next section will take you to information regarding taxes. You will need to either have an employee’s P45 from their previous employment or if they don’t have one select a reason from the starter declaration drop down, for example this is their first job this tax year.

You will also need to add information about their student loan if they have one at the bottom of the screen, and also select a tickbox if the staff member is also a director of the company. This is because director’s national insurance contributions can be calculated on an annual basis.

The final screen is around pensions. As an employer, it is compulsory to auto-enrol staff in a pension scheme if they do not opt out of doing so. If the only staff members are directors of the company, this is not necessary but as soon as you start employing anyone who is not a director, you will need to be thinking about this.

Once you have completed all of this, your employee should be saved and you should be ready to start paying them.

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