This post follows from Part 3 - Adding Employees.

To process pay and then provide your employee with a payslip, you’ll need to:

• Create a Pay Template for each employee - this is like a format of all the pay items that will be included and calculated for the employee.
• Process a pay run in Payroll - this is where you put in the hours worked and then process a pay run (which means Xero will calculate all the pay needed based on the hours work, the pay items to be included and according to the payroll calendar schedule for the employees you nominate).

Let’s start!

Create a Pay Template

1. Go to Payroll > Employees > Click on the Employee’s name and click “Pay Template” tab. Are a a number of different types of Pay items:
   • Earnings pay item - income such as ordinary time, overtime.
   • Deduction pay item - child support, work related deductions.
   • Superannuation pay item.
   • Reimbursement pay item - education reimbursements.
   • Leave - Annual, Personal/carer’s leave.
2. To add any of the above items, click Add “Earnings/Deduction/Superannuation/Reimbursement/Leave” Line button and select from the drop down list the type of pay item your employee will have. We’ll go through the process for each type of pay item:
   1. Earnings Line - would normally be “ordinary time” - that’s the classification for your ordinary hours of work. If an employee has overtime, you could include “overtime” as an additional “earnings line” item.
      • Select Calculation Type - use Earnings Rate, Enter Rate and Annual Salary. This will calculate and populate the earnings rates for your salary/wages expense.
      • Click “Save” to add the Earnings Pay Item.
      • Complete “Hours per Week” and “Annual Salary” fields. If an employee is full time, the hours per week is 38.
      • Add a new “Earnings Pay Item” for casual staff (why? so that a distorted salary figure doesn’t end up on the pay slip) by doing steps 2 to 4 again, but where you have:
        • Calculation Type - select “Enter Rate” and click “OK”
        • Fill in the Fixed Amount or Rate field.
        • Then “Save”
   2. Deductions Line - select form calculation type being Fixed Amount, Pre-Tax % and Post-Tax %. You may need help from your accountant for this, or you can always go on the ATO website for help.
   3. Superannuation - fill out the details. For the “Payment Frequency” field, select a frequency. While employees will see their superannuation accruing on their payslip each time, the legislation at this point in time says that business only needs to may superannuation payments to the fund on a quarterly basis. With “Payment Date” select a few days before each quarter payment cut off date so that you get your super payments in on time. Check out the Part 1 of this guide for links to ATO for timeframes and important dates.
   4. Reimbursement - fill out the details of the reimbursement description and click “OK”.
      5 Leave - follow the process for the different types of leave being annual and personal/carer’s leave.
      • Annual Leave
        1. Select “Annual Leave” at “Leave Type”
        2. Select from the options at “Calculation Type”
           • Enter Rate in Pay Template
           • Calculate Rate - Fixed Amount Each Period (Recommended to select this one so that the full year’s entitlement can be calculated)
           • Calculate Rate - Based on Ordinary Earnings
        3. Put in required hours in “Hour of Leave Accrued Each Year” field. Usually, it’s 152 for a Full Time employee working 38 hours a week as 20 days is the standard annual leave entitlement.
        4. Click “OK”
      • Personal/Carer’s Leave
        1. Select “Personal/Carer’s Leave” at “Leave Type”
        2. Select from the options at “Calculation Type”
           • Enter Rate in Pay Template
           • Calculate Rate - Fixed Amount Each Period (Recommended to select this one so that the full year’s entitlement can be calculated)
           • Calculate Rate - Based on Ordinary Earnings
        3. Put in required hours in “Hour of Leave Accrued Each Year” field. Usually, it’s 76 for a Full Time employee working 38 hours a week as 10 days x 7.6 hours a day is the standard annual leave entitlement.
        4. Click “OK”

You’ll need to create a pay template for each employee. Once you’re done, you can start processing a pay run.

Processing a Pay Run

Now that you’ve done the hard work in setting up the system, adding employees and those pay template, processing a pay run is a breeze. Here’s how you go about it:

(1) Timesheet Entering & Approval

1. Go to Payroll > Timesheets > Click “Add Timesheet” button. Note that you don’t need to enter in employees timesheets - employees can do this themselves via Xero’s Employee Portal (see the next part in this guide to set this up) so that all you have to do is Step 5.
2. Select employee from drop-down at “Employee” field and select your period from “Period” field and “Save”.
3. Select “Ordinary Hours” earning rate for the “Earnings Rate” field.
4. Enter the hours worked and click “Save Draft”
5. Approve timesheet by going to Payroll > Timesheets and clicking the box next to the employee’s name and click “Approve”

(2) Process Payment

1. Go to Payroll > Pay Runs > click “+ Add Pay Run”
2. Choose a payroll calendar from “Select a Pay Period” and click “Next”. The employee of this payroll calendar will appear. Steps 3 & 4 are about checking the pay template, but if you want to go ahead and post things, skip to Step 5.
3. Click one of the employees to review the payroll details making sure that all pay items need for the employee are there. E.g. You may have an employee that is required to have a deduction of child support, if so, you’d check to see if that deduction is there.
4. If all is fine, click “Save and Next” to continue checking the other employees, if you need to edit, click “Reset Pay Slip”.
5. Once all employee pay slips have been checked, click on the green circular tick to the right of each employee you want to pay in this pay run. Then click “Post Pay Run” and “Yes”. This posts the pay run to the accounting system.
6. Once your pay run has been posted, you’ll need to:
   • Send off payslips
   • Make the payment via your internet banking/cheque, create a draft invoice and reconcile it.
   • This blog post outlines the steps one by one to generate your pay slip for employees and reconcile the pay invoice with your bank transaction.

Great work! You’ve processed a pay run (you’ll be doing those regularly now on each pay date!).

The hardest part is over.

Let’s move onto the second last part of this guide - Part 5 - Employee Portal for Timesheet and Leave.