Now that you’ve set up your payroll system settings in Part 2 - Setting Up Your Payroll & Gathering Information.

It’s now time to set up your employees in the system. Setting up employees properly is very important for your business because calculations for employee pay affects your obligations on areas such as:

• Salary/wages – Fairwork Australia
• Taxation – PAYG withheld
• Superannuation

Your business is responsible for paying employees their correct entitlements so it’s important to enter in your data properly.

A good idea first step when you have an employee (or about to employ someone) is to organize an set of files that for on boarding that:

• Collects the employee’s contact details including superannuation and bank details e.g. like a contact details form,
• Provides the employee with their contract (showing employment type), tax declaration form and superannuation nomination.

Once you’ve received all the information back from your employee/s you can then start entering in their details within Xero. Here’s how to do it in 5 steps:

1. Go to Payroll > Employees > Click “Add Employee” button
2. Enter in the employees details from the contact form and the TFN in Declaration form that you have collected from your employee and when done, click “Save”
   • With the email field, use a non-work email so that if your employee moves around they will be able to access their Payment Summary. Also, emails are needed so that you can email your employee their payslip.
3. Now click on “Employment” tab and enter in all the details in the available fields. Can you see the little question mark next to each field? If you get confused, click on that button to get further information about what each field means. But I’ll explain what some of the fields mean below:
   • The “Start Date” is the date the employee starts employment with you (usually stated on the contract).
   • The “Classification” is the employee’s modern award classification or job title (this will appear on the pay slip).
   • If you tick the box near “Authorised to Approve Leave” or “Authorised to Approve Timesheets” this will allow the employee to approve other employee’s leave request/timesheets. Eg. if you have a manager, you’d usually give them this authority.
   • Once done, click “Save”.
4. Now click on “Tax Declaration” tab. If you’ve got your employee’s tax declaration form handy, that’s great. Let’s enter in their details in the fields available using the form they’ve provided and when done, click “Save”. There’s a few ‘technical’ type terms used here so I’ll try and explain them below:
   • Tax File Number also known as the TFN - this is just a number that the Australian Tax Offices gives to you to identify you from their millions of tax payers.
   • Employment Basis - this is the type of employment e.g. Full-time, part-time, casual, labour hire and superannuation income stream. Why is this important? Well certain entitlements are available to different types of employment. For example, you don’t get annual leave if you’re a casual employee.
   • Tick the boxes as they apply - remember, the responsibility of filling this form is by the employee. It is not recommended that you provide them with ‘tax advice’ on how to fill out this form. The ATO website can help them with determining the correct fields to fill out for this form:
     • Australian Resident for Tax Purpose
     • Tax Free Threshold Claimed - if employees claim the tax free threshold, their take home pay (net pay) is generally higher.
     • Tax Offset Claimed
     • HECS or HELP Debt - if employees has an outstanding higher education contribution scheme or Higher Education Loan Program debt, tick this.
     • Financial supplement debt
     • Upward variation requested
     • Eligible to Receive Leave Loading
     • Has Approved Withholding Variation
5. Now click on the ”Bank Account” tab and enter in the:
   • Statement Text Field - for example, enter in “Wages from Business ABC” with your business name. This is the text that will appear on your employee bank statement.
   • BSB, Account Number and Account Name.
   • If your employee wishes to split their wages you can add additional bank accounts by clicking “Add New Bank Account” and complete the % or $ field of the amount that is split to go into each account.
   • When done, click “Save”.

Do the above for each employee you have. While it does seem like a lot of paperwork, it’s really only at the start. It’s important because payroll is a very big area and you need to make sure that you’re meeting all your obligations. Once you have it all set up, creating payslips will be a breeze!

Onwards to the next section - Part 4 - Processing Payroll in Xero and Generating Pay Slips.