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Understanding Online Payroll

June 4, 2021
Bill Kimball

payroll xero

Start by working out what you owe each employee for the period, then make the required deductions. Not all payroll taxes come out of the employee’s pay. You will also have to pay some employer payroll taxes out of the business expense account. Setting up payroll in Xero guarantees that your numbers are updated and consolidated in one place, saving you time and money for the long-haul. Named to Entrepreneur magazine’s list of the best small business payroll systems of 2017. Any business with staff must withhold the proper payroll taxes from employees’ paychecks and pay the appropriate government taxes.

File 1099 forms with the IRS using Track1099, Tax1099 or a service like PayPal. If you submit a paper form, export the 1099 in CSV format.

  • Getting started with Xero’s payroll services is an easy workflow.
  • Imagine how much busier you’d be without employees.
  • And then you set about making deductions in the right order.
  • These amounts are taken out only after the employee has paid tax on their income.

Think carefully about what you’ll need and choose wisely, because if you get it wrong it can be hard to migrate from one payroll system to another. You may only have one or two employees now, but no doubt you’re aiming high. With scalable payroll software you won’t have to change systems as your company grows. These days it makes sense to usecloud-based accountingand payroll software. You can access your payroll information anywhere and at any time, and share information with trusted partners. Some employees may be legally required to make certain payments every time they’re paid. For a small business owner, payroll is a system for paying the correct amounts of money to the right people on the required dates.

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This is what your employee is taxed on earnings. The IRS has an online withholding calculator to help you work out how much to deduct.

payroll xero

The Xero-OnPay integration is designed to save you time and bring all your accounting together in one place. Once you’re set up, payroll data is automatically added to Xero each time your pay your employees. Our integration gives you a better view of your finances, lets you avoid duplicate data entry, and helps cut down on mistakes.

Xero Accounting Payroll

Off-cycle payrolls and contractor payments without a defined pay period will default to the check date. Select if the payroll sync will run automatically or manually.

There’s generally a quarterly report on employee earnings and tax, plus an end-of-year summary. State tax agencies may also have reporting requirements, so check with them for their payment and filing dates. For this guide, we’ll assume you know how to work out your employee’s pay. We’ll take you through deductions and reporting requirements. Check to see what types of report are available with your chosen accounting or payroll package. Ask your accountant which ones might be useful for your business. Choose a payroll package or payroll accounting software add-on that your accountant or financial advisor can also use.

payroll xero

Check out the IRS publication Employer’s Tax Guide to Fringe Benefits. The employer must pay federal unemployment tax on the first $7,000 each employee earns for the year. If you pay those state taxes in full and on time, you get a discount on the federal rate. Check out what the IRS has to say on federal unemployment tax. You’ll also need to lodge some paperwork before paying a new employee.

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Then total wages, taxes, benefit deductions/contributions, reimbursements and contractor payments sync to your Xero account each time you run payroll. Pay employees with ease with local, state and federal payroll taxes automatically calculated, filed and paid. We strongly recommend following Xero’s guide on employee and payroll setup before exporting from Deputy. make sure their payroll functions are handled with compliance and with utter efficiency. Xero offers solutions including tax calculations, tax filings, timesheets and reports for a full-range payroll support to businesses. The more employees you have, the more complex your payroll usually gets, especially if you have a mix of employees on hourly wages and salaries. And if you’re managing employees across several states, that adds another layer of complexity.

Calendars dictate the pay period for that employee. This may be set on each employee’s Employment tab, under “Payroll Calendar”. If you have not created a calendar, you may do so in Xero in your Payroll Settings, under the Calendars tab. If an employee has approved timesheets for this pay period in Xero please revert them to draft, as otherwise, an error will appear. comes in an easy set up and processes pay runs in compliance with the government’s requirement for businesses. The Australian Tax Office requires businesses to report payroll information once a year.

As an employer, you will collect taxes from your employees for the tax office. You need to hand over those taxes when scheduled, and file reports to the tax office on a regular basis.

Each payday, you need to deduct taxes from your employees’ earnings and work out what payroll taxes you owe as an employer. You may need to hold on to these withheld taxes for a while before passing them on to the government.

To deduct health, dental or vision insurance before tax, ensure your insurance plan is considered a pre-tax benefit. Health Savings Account, Flexible Spending Accounts and Dependent care contributions are all made before tax as well. file tax – forms like the 941 and W2 go to the IRS, but your state tax agency may have additional requirements, so ask them. Decide whether you’re paying salary or wages and learn the rules for whichever you choose.

In short, you’re acting as the tax collector for your employees. If you’re working out the deductions manually, then set a decent amount of time aside for the job. If you have several employees, it might make more sense to use software which can do the calculations for you. Businesses are sometimes required to take money out of an employee’s earnings.


Learn more about payroll deductions such as benefits, taxes and garnishments. Take out all taxes and deductions from your employees’ gross pay to get their net pay. Once you’ve calculated net pay, it’s time to pay them. Make payments based on the method of payment you’ve agreed on. Their pay stubs will show their gross pay, along with all the deductions taken from it and the net pay they receive. Most states also have their own payroll taxes, which employers must collect and hand over. Check with the state tax agency where your business is based, and where your employees live.

See and reconcile your Gusto payroll transactions in Xero, and easily jump into Gusto from the Gusto payroll menu tab in Xero. You will also need to modify and correct the employee ordinary rate within the employee’s profile in Xero. When exporting an Award from our library, attempt to match the export code to the appropriate pay item in Xero.

There may be a long time between when you collect tax from an employee and when you pay it. Many businesses set up a separate bank account for holding that money to avoid spending it. For most employees, you’ll need to deduct 6.2% of their pay for social security and another 1.45% for Medicare. The rates may be different for highly-paid individuals.

It doesn’t usually includeindependent contractorsor freelance workers, or anyone who invoices you through their own business. If you’re ever in doubt about who’s on your payroll and who isn’t,talk to your accountant.