How easy is it to run your payroll using Xero?

16 Jul

Payroll day.

Those two words probably make your heart sink a little.

Between calculating tax, filing your RTI submissions and making sure everyone gets paid correctly, it’s enough to ruin anyone’s day.

But what if your payroll could just... work?

What if it took minutes instead of hours?

That’s what Xero Payroll can do for you – bringing your payroll run into the same system as your accounts.

This blog takes an honest look at what it’s really like to run payroll in Xero. We’ll look at the good bits, the tricky bits and whether it’ll make your life easier.

Getting started: the setup experience

Setting up any payroll software involves some heavy lifting. However, with Xero, you’re looking at hours rather than days to get everything running smoothly. We can help ensure everything’s set up correctly and optimised for your business, so you’re ready to go from day one.

Once installed, the basics are straightforward enough. Add your company details, connect to HMRC (Xero handles the authentication), and you’re halfway there.

Employee setup comes next – names, addresses, tax codes and NI numbers. If you’re moving from another system, you can import most of this via CSV file. Just check everything has been imported correctly. Tax codes are especially prone to going walkabout during the data transfer.

The trickiest bit? Getting your year-to-date figures right if you’re switching mid-tax year. You’ll need everyone’s gross pay, tax paid and NI contributions from April to your switch date. Miss this step, and your P60s will be wrong come year-end.

Here’s a pro tip from our experience – before you run your first payroll in Xero, set up a dummy run first. Process it, check the numbers make sense, then delete it. It’s much better to spot issues now than when real money is involved.

Day-to-day payroll: how it works

Here’s what running payroll looks like in Xero. You open the pay run, and everyone’s standard pay appears automatically. Salaried employees show their monthly amount. Hourly workers show their contracted hours.

Need to add overtime? Click the employee. Type the hours. Done.

Sick leave? Select it from the drop-down, and Xero Payroll calculates statutory sick pay automatically.

However, if someone takes unpaid leave, you’ll need to adjust their hours or salary manually. Xero won’t assume anything, which is probably safer, but means you must remember to make these adjustments.

Xero Payroll’s interface is clean. Everything’s on one screen, so there’s no hunting through menus.

Processing is quick once you’re familiar with the system. Compare that to the hours you might spend with spreadsheets and separate HMRC filing, and you’ll see why many businesses have already made the switch to Xero.

The approvals process is the real time-saver. Just review the summary, check the bank payment total matches what you expect and hit approve. Done.

Xero generates your payslips automatically and sends them to your employees’ inboxes. No more printing. No more stuffing envelopes. No more staff asking, ‘have you got my payslip?’.

Time-saving automation features

This is where Xero Payroll really shines.

It calculates your tax and National Insurance automatically, using the latest HMRC rates.

No manual tax tables. No worry about getting it wrong. If you change an employee’s tax code, the next pay run will use it automatically.

It calculates everyone’s pension contributions, too. You just set up your scheme once, assign employees to it, and Xero handles the rest. It even produces the upload files for your pension provider, although it’s always wise to check if your provider accepts Xero’s format first.

Xero also posts your payroll journal straight to your accounts. No manual data entry or mistakes, just accurate staffing costs appearing exactly where they should be. It means your P&L stays current, and your accountant will love you for it.

Bank payment files are another winner. Instead of manually setting up each payment, Xero Payroll creates a single file you can upload to your bank. It takes just a few seconds to pay everyone, whether you’ve got five employees or 50.

Keeping you compliant

HMRC compliance is where most payroll software earns its keep, and Xero really delivers.

It files your Full Payment Submission with HMRC before you’ve finished your coffee. It also takes care of your auto-enrolment pension payments, tracking who’s eligible, handling opt-outs and keeping the records that HMRC needs.

It calculates all your statutory payments correctly, too. Xero knows the rules relating to statutory sick, maternity and paternity pay and applies them. You just need to mark why someone’s off, and the system handles the rest. It even knows about waiting days and qualifying periods.

Xero Payroll makes year-end painless. It generates P60s automatically and sends them straight to your employees. It also updates your P11D data throughout the year and can send P45s to your leavers in just a few clicks.

However, while Xero updates automatically when legislation changes, you’ll still need to check your processes still work. We always recommend a quick review when each new tax year begins.

Reporting and insights

Xero’s payroll reports give you everything HMRC needs, and most things you want to know. Wage slips, payment summaries, PAYE information are all there at a click.

The payroll activity report is gold for checking your work. It shows every change made to the payment run, who made it and when.

The cost analysis tool helps with budgeting. You can check your staffing costs by department, track overtime trends or compare monthly wage bills. Everything exports to Excel if you need to dig deeper or create board reports.

And because Xero Payroll is integrated with your accounts, you can build custom reports combining your payroll information with other data. Want to see wages as a percentage of revenue? Easy. Need departmental profitability, including labour costs? It’s all there.

How does Xero compare to dedicated payroll systems?

Specialist payroll systems like Sage Payroll or BrightPay have more bells and whistles than Xero. These dedicated systems handle things like complex shift patterns, multiple pay rates and detailed absence management better.

But for small businesses with straightforward payroll – standard hours, monthly pay, typical benefits – Xero handles everything you need. There’s no need to switch between systems. No importing journals or reconciling differences. Your payroll and accounts speak the same language, because they’re the same system.

It’s only when you get into more challenging business structures that you might need something a bit more specialised.

So, is Xero Payroll right for MY business?

After helping hundreds of businesses with their payroll setup, here’s our take… if you’re already using Xero for your accounts, adding Xero Payroll is a no-brainer. It’s perfect if you want payroll that works without the fuss.

The integration saves hours of admin time, reduces errors and keeps everything in one place. For businesses with up to 50 employees on relatively simple pay structures, it handles everything beautifully.

The businesses that might need to look elsewhere? Those with more complex payroll needs. But even then, Xero Payroll might surprise you with what it can handle.

So, if you want to see if Xero Payroll fits your business, why not give us a call?

We’ll show you exactly how it works with your specific setup, help you switch from your current system, and make sure you’re confident in running it yourself. Because payroll shouldn’t be something you dread. It should just work.

Get in touch to learn how we can make your payroll as simple as it should be.