Can I set up Xero Payroll myself & what’s involved?

21 May

If you’ve decided to bring your payroll in-house, Xero is probably already on your radar.

It’s an affordable way to bring your accounts and your payroll into the same system, so you don’t need to rely on an external payroll provider for every little change you need to make.

It all sounds straightforward, and in many ways, it is. But before you dive in, it’s worth asking yourself whether you feel confident setting Xero Payroll up yourself, and what might happen if you get something wrong.

This blog looks at how easy Xero Payroll is to use, what the setup process involves, where you might run into problems, and whether getting support from a Xero Payroll expert from the start is worth it.

Is Xero Payroll easy to use?

Xero Payroll has a well-earned reputation for being one of the more accessible payroll tools on the market, and that reputation is deserved.

Its interface is clean. The setup follows a logical sequence. And it automates the tasks that trip people up most often, such as tax code calculations, National Insurance, statutory leave and Real Time Information (RTI) submissions to HMRC.

If you already use Xero for your accounts, it gets even better. Your payroll data flows straight through into your accounting records without any extra data entry. What your payroll says is what your accounts say. It removes the need to keep manual journals or reconcile the differences between two separate systems.

For SMEs with straightforward pay structures and small teams, Xero Payroll handles everything you need, and handles it well.

What does the setup process involve?

Setting up Xero Payroll for the first time is relatively simple, even if you’re not too familiar with the software. You’ll need to go into the ‘Payroll’ menu, select ‘Payroll overview’ and click ‘Set up payroll’. Xero will ask you a few questions, then guide you through the steps listed here.

If you’re switching to Xero Payroll from another provider, you can use Xero’s payroll switching wizard, which will guide you through the setup process and automate some of the steps.

Whichever route you take, here are some of the things Xero will ask you to provide:

Company and HMRC details. You’ll need to add your business information and connect to HMRC so Xero can file your RTI submissions. Xero handles the authentication, so this part is relatively painless, provided you have the right information to hand.
Employee records. You’ll need to set up each employee record with their name, address, National Insurance number, tax code, start date and pay calendar. If you’re migrating from another system, you can import most of this in a CSV file. It’s worth checking every record carefully after import, especially the tax codes, to ensure they’ve transferred over cleanly.
Pension scheme. You’ll need to configure your workplace pension within Xero, assign employees to it, and set their contribution rates. Xero then handles the calculations and produces the relevant files to upload to your provider. It’s worth confirming that your provider accepts Xero’s file format before you go too far down the road.
Opening balances. If you’re switching to Xero Payroll part way through the tax year, you’ll need to enter accurate year-to-date figures for every employee. That means gross pay, tax paid, and National Insurance contributions from the start of the tax year up to the point you switch. If you enter these figures incorrectly, or miss this step, your P60s at year-end will be wrong. It will create a discrepancy between what HMRC holds and what you’ve filed, which can take a lot of time and effort to unpick.

Once you’ve completed the basic steps and entered all the information above, we’d recommend performing a test payroll run before you go live to check that the numbers make sense. You can delete it before it posts. This quick step can save you a significant headache, as you can fix any potential issues before your first real payroll run.

You can also find more information on our blog here.

Where do beginners tend to come unstuck?

While Xero Payroll is very user-friendly, we see a few common issues that tend to trip first-time users up if they don’t know what to look for.

As mentioned above, entering incorrect opening balances is the most consequential setup step for anyone switching part way through a tax year. Your figures need to be right, and they need to match what your previous system has reported to HMRC. If there’s a gap in your records or you’re not sure what your old system reported, things can get complicated very quickly.

Setting up the correct account codes in Xero for your payroll liabilities and expenses is an important early step also, as this will ensure that your accounts & reports are showing the correct figures.

If you’re migrating from another payroll system, the tax codes don’t always transfer correctly. An employee on the wrong tax code will have the wrong amount of tax deducted, and depending on how long it goes unnoticed, correcting it can be complicated.

While Xero does your workplace pension calculations once it’s set up, your initial configuration needs to reflect your scheme accurately. If you get the contribution rates, qualifying earnings or pay reference periods wrong, you’ll be making incorrect deductions from day one.

Finally, it’s crucial to set up your underlying payroll rules correctly. While Xero knows what statutory sick pay is, you still need to tell it when to apply it. The same goes for maternity pay, holiday pay, overtime and anything else that falls outside a standard monthly payment run. While Xero automates the calculations, it will only do so when you tell it to.

So, should you set Xero Payroll up yourself?

If you’re a confident, organised business owner who has a good grasp of Xero and the basics of payroll, you can absolutely set up Xero Payroll yourself.

But whether you can do it yourself and whether you should are two different things. So, the real question isn’t whether you’re capable of setting it up. It’s whether the risk of getting something wrong, and the time it takes to put things right, is worth the cost of doing it alone.

While Xero’s Setup Wizard can get you moving, getting expert support will ensure everything works as it should from day one. And that’s where we come in. We’ve helped hundreds of businesses across the UK move their payroll to Xero, from sole traders taking on their first employee to established businesses leaving a long-standing payroll bureau.

When we set up Xero Payroll for you, we’ll get an understanding of your business first. We’ll look at your pay structure, your pension scheme and how your accounts are coded, then configure Xero Payroll around what you need.

In most cases, setup can be done in a few hours. After that’s done, we’ll show you how it works for your business, so you can run it yourself with confidence. And if any questions crop up later, as they always do, we’re here.

You can also read more about using Xero Payroll on our previous blog here.

Payroll shouldn’t be something you dread. With the right setup, it can run like clockwork every single month. So, if you want to get Xero Payroll set up correctly from the start and have someone on hand to make sure your first few pay runs go without a hitch, that’s what we’re here for.

Book a consultation today, and we’ll talk you through what’s involved for your business.