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Community > AU Payroll >

AU Payroll: Paid Parental Leave

Started by Suzanne Brown -   in AU Payroll

Hi does anyone know the best way to process Paid Parental Leave in Xero?

I have received the funds from Centrelink which I have put to a liabilty account "Parental Leave Payable"

I was going to set up an earnings item for Parental Leave but you can only allocate an expense account to earnings. Do I set up a leave item instead? If so how do I set that up to show she has 18 weeks accrued and how do I offset it against the liabilty account?


Cheers
Suzy
Merged: AU Payroll: Centrelink payments received for maternity leave

How do I record the centrelink payments that have been received by the employer to be paid to the employee each pay cycle?
 

Kathy Benson  

HI Cathy,

You post them to wages - or you can create another expense account of Maternity leave. This is so you can keep paying your employee as normal but your wages expense claim is less as you did not have that expense the government did. Would be much happier if the Government paid this to the employee direct.
 

Jane Noller  

Hi Cathy,
Here is my procedure:-
Step 1 Capture Payments from Centre Link and keep track of balance
Create an Asset Account named Centre Link - Paid Maternity Leave Scheme with Dashboard Watch and Enable payments for this account.

Step 2 Create a Paid Leave Code in Payroll Setup

Step 3 Assuming pay fortnightly, enter rate in employee Pay Template
Enter Hours as 10 (10 working days) and the daily rate provided by centre link

Step 4 Process Leave in Leave Bookings

Step 5 Process the payrun as normal
When you are posting payments, post the net payment to Centre Link Paid Maternity Leave Scheme asset account. When you receive money from Centre Link, post the payment to this account.
 

Janet Patton  

Hi Suzy - we recommend using an earnings rate to do this, like you suggested (more info in our Help Centre here).
You’re right though, it’s only possible to use an expense account when you set up an earnings rate. So, to allocate amounts to the liability account you’ve set up you can use a manual journal.
 

Quenby S (Community Manager)  

I have the same issue. My understanding is that paid parental leave payments should not be treated as an expense in reporting to the ATO. Can you explain how use a manual journal to get round this?
 

Andrew Hone  

Hi Andrew, that’s how we understand it too. If you've set up an earnings rate to process it in Payroll, it will be allocated to an expense account. If the money being received is going to a liability account you can journal the amount out of the expense account and into this liability account to clear out the balance and reverse the expense in your reports.
 

Quenby S (Community Manager)  

Merged: AU Payroll: Paid Maternity Leave

Why is Paid Maternity Leave expensed in the P&L when it is not an expense of running the business. In AU businesses are an intermediary in the payment and therefore the receipt of the funds and payment thereof should be removed from the P&L As it stands I will need to run the P&L and then make adjustments. Could a liability account be created to allow for the money in and out to be allocated it to thereby removing it from the P&L completely?
 

Michelle Campbell  

Merged: Paid Maternity Leave

Why is Paid Maternity Leave expensed in the P&L when it is not an expense of running the business. In AU businesses are an intermediary in the payment and therefore the receipt of the funds and payment thereof should be removed from the P&L As it stands I will need to run the P&L and then make adjustments. Could a liability account be created to allow for the money in and out to be allocated it to thereby removing it from the P&L completely?
 

Michelle Campbell  

Michelle

There are two types of Paid Maternity Leave - there is the Government PPL (or whatever they are calling it these days), where the government pays the employee directly for 18 weeks (or whatever it will be changed to/from). Initially, funds were received by the business, and then remitted to the employee via the payroll process. We would see a revenue account for PPL, and a corresponding expense account, and you were still responsible for including these figures in Payment Summaries. I'm finding this now seems to be changing, where the relationship is now between the Govt and the Employee directly.

The second type of Paid Maternity Leave, is where the business (perhaps as the result of an award or agreement), agrees to a paid period of Maternity Leave, that is over and above what is covered by the Govt. In this instance, having it recorded discretely on the P&L may be warranted.
 

Cassandra Scott  

Hey Michelle - If you’re referring to the Government Paid Parental Leave (PPL) scheme, there are a few different ways to handle this in your P&L. You’re right though, the amount will be allocated to an expense account when its processed through Payroll initially. This is because there’s no option to select a Liability account when setting up an earnings rate in the payroll settings at the moment.
Your first option is to set up a Liability account to receive the funds from Centrelink, then once the pay run has been posted, process a manual journal to re-allocate the PPL to the liability account. This is what we would generally recommend.
Alternatively, you can allocate the received funds to the expense account and as the pay runs are posted the amount in this account will eventually balance out to nil.
As Cassandra mentioned, if this relates to paid maternity leave that is unique to your organisation, we’d expect that these amounts should be shown on the P&L because its an expense to the company, like other leave types.
 

Quenby S (Community Manager)  

Very helpful. Thankyou
This is my first time recording maternity leave pd via centrelink.
All info required was here and easy to find.
 

Michelle Govier  

Very helpful. Thankyou
 

Michelle Govier  

Hi,
I am currently trying to set up two employees for centrelink parental leave payments. I have gone in and created a leave code. Just wondering do I also need to create a new earnings rate?
 

Jade Boyes  

Hey Team - We recommend using an earnings rate, rather than a leave type, so you can make the payments exempt from SGC. We have some instructions on how to do this here.
 

Quenby S (Community Manager)  

I've set up as instructed in payroll settings, I've also set up the ppl liability account.

I am wondering when I am reconciling the transactions, the PPL coming from the govt obviously gets reconciled to the liability account, but where is the payment to the employee being reconciled to, the same liability account? How does the tax get accounted for to report to ATO for the end of year PAYG summary?

I'd like specifically to know, what account am I reconciling the payment transaction of ppl to the employee to?

I see above you instruct to manually journal the balance (tax withheld) out, how exactly do I do this?

And is the tax withheld reported to the ATO - how? Is that from the PPL earnings rate being set to salary and wages when set up through payroll settings?

Sorry for the questions, thanks in advance for your help.
 

Louise Standaloft  

I am in the same position as Louise above. If anyone can help with answering these questions it would be appreciated.
 

Angela Giakoumatos  

Hey Team - When you set up the PPL in the payroll settings, it will be an earnings rate. You’ll need to allocate this to an expense account. This is where the journal comes in. The gross wage expense for PPL from the pay run needs to be re-allocated to the liability account so that these amounts net each other off and there’s a nil balance in this account.
In regards to tax, these earnings are treated the same as any other taxable gross wages in the pay run (please don’t select the option to make it exempt from PAYG in the payroll settings). There should be no reason to journal any tax amounts. These are processed, reported and paid as normal.
The physical payment to the employee will go through the Wages Payable liability account, along with any other net wages being paid.
 

Quenby S (Community Manager)  

Hi Quenby I really think the Xero guides on this should be updated to include the information in this thread. The set up of paid parental leave is too short and does not include any of the additional information required or as described above. I.e. Why not have simplified instructions to identify each stage of the process?

1. Money in from Govt = DR Bank and CR PPL liability
2. Pay employee = DR wages & CR PAYG tax withheld liability and Net pay to Wages Payable liability account
3. Bank transaction/deduction of net pay to employee = DR Wages payable liability account & CR Bank
4. Clear PPL liability and wages expense with a GJ = DR PPL liability and CR Wages expense account.
 

Melissa Foote  

This is perfect! I eventually came to the same conclusion but it would have been easier, and quicker, to have this example as the guide.
 

Angela Giakoumatos  

Hi guys,

I'm having a total brain fade today!
I have one really silly question, when setting up the paid parental leave in Xero & you have choose the expense account, should i create a new expense account to use or should i be using an expense account that is currently being used?
Thanks
 

Gizelle Katsivelos  

Hi All,

I disagree with the simplified instructions above. The Centrelink guide to paid parental leave states:

Your tax return
In your tax return, you need to declare the following as assessable income:
• Paid Parental Leave funds you have received from us
• any interest you have earned on Paid Parental Leave funds.
You may claim a tax deduction for:
• the amount of Parental Leave Pay you have provided to your employees
• costs you have incurred in administering the scheme.

With this in mind, I was thinking that the receipt from Centrelink would go to "Other Income" or something similar and the payment to the employee would go to Wages just as any other wage expense. This way, at the end of the year, your wages expense will reconcile with your payment summaries as the paid parental leave needs to be included on the employees payment summary.

Any thoughts would be appreciated.

Thanks
 

Elizabeth Dent  

Hello Elizabeth,
I have worked with Parental Leave three times already and I haven't had any staff come back to me with any issues. I have followed Xero guidelines to process Parental leave and it seems to be in line with what the ATO requires, which is to show these payments at Item 1-Salary or Wages with the correspondent PAYG deductions to be submitted to ATO.
I use an expense account "Parental Leave Payments" which is linked to the Pay Item "Parental Leave". This set up makes it clear in the Payroll Reports and also in the P&L

If you pay Payroll Tax though, parental leave payments are exempt wages.

Hope this helps.

 

Flavia Leser  

Hi Flavia
How do you get your payment summaries and wages account to balance at end of year if your are taking the Paid Parental Leave out of the Wages account with the journal but these figures need to be on the employee payment summary?
Thanks for your help
 

Jodi Sullivan  

Hi Jodi,
For the purpose of reconciling payroll it shows separately in the payroll reports. For the purpose of Payment Summaries, according o the ATO and other sources I read, I doesn't need to be separated on the Payment Sumary, buy included in Item 1.
I attached the following links hopefully it will have all the information you need.

https://www.ato.gov.au/Individuals/Tax-Return/2015/Tax-return/Income-questions-1-12/5-Australian-Government-allowances-and-payments/

https://www.humanservices.gov.au/customer/enablers/adjusted-taxable-income#a2

Regards
Flavia
 

Flavia Leser  

Hi Quenby, is there a reason why Xero requires us to take a pointless extra step in journalling the amounts across to a Liability account, instead of allowing us to simply set up a payroll item allocated there?
 

Zosia Romanowski  

Hi Louise and Gizelle,

My two cents:

1. The PAYG is automatically done when you process the PPL payment as wages. All you should really need to do is journal the gross amount paid to the employee out of the expense account and into the PPL Liability account you've set up, to offset the money you received. Therefore, the balance of the liability should be what you have received from the gov't but not yet paid (since their payments don't necessarily align with payroll).

2. I set up a separate expense account in the wages area called "Wages - PPL Clearing", to make it easy to journal the gross amount back to the Liability - I just clear the account at the end of the month and reconcile the Liability to make sure the correct amount is in there.
 

Zosia Romanowski  

Hi Elizabeth,

After much searching, I managed to find the Centrelink Guide you were referring to and the information you gave applies only to completing the company tax return, not the treatment of PPL received and paid in the business financial records. The advice being given above regarding using Liability accounts is actually correct. For those wanting to read the guide it for themselves, the link is https://www.humanservices.gov.au/sites/default/files/fpr081-1508_0.pdf - however, I've copied and pasted the relevant part of the guide below (emphasis added by me):

"5.6 Your financial reporting and tax

Your financial statements

In accordance with Australian Accounting Standards,
Paid Parental Leave funds you receive from us must
be treated as a liability
until you have provided
Parental Leave Pay to your employee.
You should not account for Paid Parental Leave funds
as revenue or Parental Leave Pay as an expense.
"
 

Zosia Romanowski  

Also, for those asking how to reconcile the end of year payroll since PPL is reported on the Payment Summaries but not showing in any wages expense account, it's simply a matter of being aware that it's a reconciling item. You can run a transaction report for the year for the PPL expense clearing account (if you use a separate one, or the Liability account if you don't) and add the total of the Debits onto your reconciliation.
 

Zosia Romanowski  

Hi Michelle,

This reply might come a bit late for your needs, but I thought I'd post it here for others who come to this thread:

For government PPL, you should use a Liability account, as the Centrelink guide on PPL specifically says not to show PPL as revenue and expense items in the accounts.

The alternative method suggested by Quenby, where you allocating the income to the expense account and let the wages expense clear it out, might be simpler because it saves you the extra step of doing a journal to the Liability account on a regular basis; however, if you're going to do it, you need to be aware of what will happen if it doesn't all clear out within the Financial Year. The payments the business receives from Centrelink don't generally align with your pay cycle, so at any given time you're likely to have received more than you've paid to the employee, thus having a liability which reduces the value of the wages expense. If you're still administering someone's PPL when EOFY rolls around, you'll need to recognise that liability and take it up into the balance sheet as a balance day adjustment.
 

Zosia Romanowski  

@Zosia - Thanks for all your help here!!

Yes, this is why we recommend liability accounts and journals to move the expense out of wages. When reconciling at year end, again you're right, you simply need to take into consideration the amounts in this liability account.
 

Quenby S (Community Manager)  

Merged: AU Payroll - Parental Pay earnings category

Does anyone know what earnings category to use when you set up an earnings rate for Parental pay? Xero only has 3 categories- Ordinary time earnings (OTE), Overtime earnings and Allowances. Parental leave pay is not an allowance and not overtime earnings which leave OTE but according to the ATO, parental leave is not considered OTE.
 

Shamani Hawtin  

Hi Shamani,

Since Xero only have these 3 categories - Ordinary Time Earnings (OTE) would be the most logical option. Just make sure you tick 'Exempt from Super Guarantee' when you set this up. Anything not considered OTE according to the ATO means you don't have to pay Super Guarantee on it.

Also you don't need to accrued Holiday and Paid Personal leave for Parental leave either.

Hope this helps.
Kind regards,
Le Tran
 

Le Tran  

Merged: AU Payrol - Company Paid Parental Leave

Hello

Our Company has a paid parental leave scheme which we offer to employees. How can i add this to a Leave entitlement for employees to apply for? I can create the Leave (in settings/ payroll setting/ leave) however employee's can not select it.

Any help is greatly appreciated.

Thanks
Aliki
 

Aliki Reilly  

You have to assign the leave to the employee in the employee's leave tab.
https://help.xero.com/AU/PayrollSetUpLeaveNew
 

Joy Moore  

Thanks for your help Joy.
 

Aliki Reilly  

Hey Everyone - Details on how to set up PPL in Payroll here!
 

Quenby S (Community Manager)  

Merged: How to record Parental leave - Australia

Hi every one,

We received some amount from Centrelink for Parental leave. I was wondering how to record this amount into our book of account. I mean

Dr......................
Cr............................

Thanks
Bigyan
 

Tim Yang  

I think if it were me I would create an account under Other Income called "Parental Leave" and record the amount there.
 

Geoff Young  

We create a negative expense account called - Wages-Government Subsidies (so it sits next to wages on P & L). Then we setup PPL as a payment item (daily rate) in Payroll Settings and default it to come from here. That way its easy to check that you have paid the correct amount as once the 18 weeks are up it should come back to zero.
I also prefer this as in a small business it could be a significant amount and you don't want to inflate income in the P & L so the owner thinks things are going better than they really are.
 

Kerry Lee  

@ Quenby, the instructions for setting up PPL in Payroll need to also include a step to ensure the box is ticked for "Reportable as W1 on Activity Statement"
 

Rebecca Zeus  

For novices like me what is the process to 'journal' the transactions to offset the liability?
 

Amanda Botfield  

Hi Amanda,

In the Adviser menu, go to Manual Journals. Create a journal that debits the liability account and credits the expense/clearing account. The narration/description that I use is "Take up PPL paid as wages to offset liability".

You can also set the journal up to repeat monthly, like invoices and purchases.
 

Zosia Romanowski  

Thanks everyone for your very helpful guidance and instructions, particularly the details in the guide Quenby S. Just found these are the best instructions and advice on all the internet. Go Xero users and advisors!
 

Dianne Kennedy  

Thanks for the lovely words, Dianne! Have passed on to the team :)
 

Brittany H (Community Manager)  

Hi there
How do I record the paid parental leave where the employee is being paid direct from Centrelink? Do I process a leave application in Xero as unpaid parental leave? Or do I have to record the amounts received by the employee as wages for the eofy payment summary? I acknowledge that these amounts paid are without sgc and leave accruals but are taxed by Centrelink.

Thank you
 

Jaunita Baker  

It would be worth contacting Centrelink to double-check, but I would expect that you don't need to do anything if you're not involved in the payments. Centrelink should be issuing the employee with a Payment Summary for what they've paid to them and you simply record it as parental leave with no value attached.
 

Zosia Romanowski  

Thank you!
 

Jaunita Baker  

I have followed instructions above, however there is no super paid for PPL. I cannot process the wage without super, it won't allow. How do I get around this?
 

Karen Tremain  

When you set up the PPL payment type in payroll settings tick the exempt from SGC box at the bottom and then when you run the pay it will calculate the super as 0.00
 

Joy Moore  

Hi Joy, I followed instructions to set this up as paid leave not in payroll settings for wages. There is no option in Leave to untick super.
 

Karen Tremain  

It's ok Joy. The info up top is obviously incorrect. I have removed what I created and followed current Xero instructions. All sorted.
 

Karen Tremain  

Glad it all worked out.
 

Joy Moore  

Hi Everyone,

I have followed Quenby's guidance above and especially Melissa Foote's also, who's detailed explanation of accounts to DR and CR i found very helpful. So much so i have followed this format...

Can i just check the final step involved in the journal entry @Melissa, is this to DR Liability PPL acc and CR the normal WAGES & SALARY expense account or the new Centrelink expense account we created towards the start of process?? I believe there is nothing coded to this Centrelink expense account at present?

Also in addition to this is there a journal that follows on from that to show as assessible income? If so what is the transactions (DR and CR accounts) involved in this?

Any tips/guidance greatly appreciated.

Thanks in advance :)
 

Maggie Perse  

Hi Maggie, sorry for the belated response I have only just returned from the US on a 4 week trip so have not been attending to my emails. With regard to the journals, there are no additional transactions or entries required beyond the ones I detailed above, as the last journal clears the PPL liability back to zero and also reduces the wages expense account (as it is not an expense of the company as the government is paying for it via the employer - essentially the employer becomes a virtual clearing house).

However, what will happen at end of finanial year is that your wages reports and amounts will not reconcile to what has been reported on the BAS's and/or IAS's and the gross wages paid via payroll will be lessened in the P & L via the journals to reduce the wages expense amounts not incurred by the business.

There is no journal required to show the amounts as assessable income as there is no assessable income that belongs to the business. The income however, will show up for the employee and will be reported on their payment summary. These amounts are assessable but you do not need to do anything if you record the payroll payment properly through the payroll centre in Xero. If you follow the transactions and manual journals that I noted, this is all that you will need to do apart from a manual reconciliation at end of year.

I hope this helps!
 

Melissa Foote  

Melissa thanks a lot, i appreciate it :)
 

Maggie Perse  

Hi All i have a question regarding setting up the Earning Rate. In the Earning Rate and No of Week boxes are we to enter 695 and 18 respectively or do we have to enter the pay for week or a fortnight?
 

Dinusha Athugoda