Xero - beautiful accounting software

Xero Business Community

Xero Business Community

Hi everyone, Come on over to the new discussions in Xero Central. It’s a more intuitive way to connect and chat all things business with one another. Ask questions, dish out answers, and get involved.

You can still view topics in the Xero Business Community to see all the useful knowledge that’s been shared there; and you can restart conversations you feel have been of huge value to you on Xero Central.

If you have brilliant ideas for innovations, you can keep on adding feature requests in the Xero Business Community, and voting on existing requests. There’s more in store, as we come up with the best way to take on your thoughts and share developments
Community > US Payroll >

US Payroll: Recommend or regret?

Started by Jonathan Hudacko -   in US Payroll

Xero Payroll users - I have just started a small firm and am making my accounting, payroll etc service decisions. Firm has employees in California and NY. Briefly, would you choose to use Xero payroll again or do you regret it? Thanks

Brad Stees  

Sorry to hear you wouldn't recommend Payroll, Brad! Can you give me any specific feedback that I can pass on to the team?

Brittany H (Community Manager)  

There is not way to reconcile the transactions and have accurate reports. For example, xero records the full payroll cost automatically in the back end. This is great. I can run a report and see my total expense.
However, when I write my employee a check, I don't write the full amount that would match the auto entry. I subtract out the payroll taxes as per the Irs rules and pay them net. So when i reconcile it doesn't match what xero auto enters. This is the same for the taxes. It doesn't match up.
So I create a wages transaction in my reconcile page for my bank acct and I create a taxes reconcile for my tax payments and basically all of this is double counted.
So now all my payroll based reports are worthless.
The amount of workarounds you would need to do to actually have this work is mind boggling. So no I would not recommend Xero Payroll.
Also changing small things like an employee regular wages is difficult and counterintuitive. You can't change it under the employee tabs as it's locked. I don't want to go on and on.


Brad Stees  

I was thinking of enrolling also, but after reading Brad Stees post I am re-thinking it. What say you XERO? Brittany H Community Manager have you looked into this and what suggestion do you have?

Mari Berulis  

Hello - I have enrolled 2 weeks, but struggled alot setting up my organization and chart of account, and pain is payroll, you can book actual past payroll, the screen does not allow you to post previous paid payroll, out of Xero, all I want a software where I can record my Journal entries, instead of Excel sheet, but I guess Xero is not setup in that way. I am still struggling to record my Income expenses paid.


Nishan Dev  

Brad do you print your employee checks from Xero? Only reason I ask is that the amount you need to pay your employee is included on the Xero created check. If you want to write your own checks, the amount you need to pay your customer is just the net amount displayed on the Paystub.

Note that once a Pay Run has been processed, the net amount is posted to the Wages Expense account and is moved to the Liability account. You shouldn’t have to do any workarounds to reconcile your accounts - when the checks have been cashed, and are displayed on your bank statement in Xero, from within the reconcile screen they’ll automatically be matched to the corresponding payroll payment. To reconcile your tax payments you may need to use Find & Match to find the multiple line items.

As you mention, to change an employee’s wages you'll need to set-up a new hourly, or salary amount and add that to their pay template - appreciate it’s not as obvious as some might expect.

@Nishan I know the team are in touch with you at the moment.

Brittany H (Community Manager)  

Brittany, When I write a manual check from my linked bank acct, for the exact amount of the net in the payroll paystub, it does not link to the payroll liability. what you describe simply does not work. If it linked as you describe I would have no issue. Same applies to the taxes that i pay to the IRS. They are still sitting in the Bills to Pay area in spite of them being paid along time ago. These functions simply do not work at all in Xero.

Brad Stees  

Hi David,

I don't know if this will bear upon your situation, but I have received this helpful explanation from a Xero customer support rep named Christopher. It regards issues with reconciling pay runs created with the "manual" preference:

"If you created these Pay Runs as manual payments, you will need to create the Spend Money transactions to reconcile. In Xero, the Manual payment method is used to do a journal entry for your payroll. This Manual option is used to make an adjustment or record the payment of a check outside of payroll. When using this function, Xero debits the expense account and moves it to the liability account. You will then need to do a Spend Money for only the Net amount from the bank account to the liability account, in order to reconcile to the bank. I recommend removing all of the Spend Money transactions you created, and then re-create them with only the Net amounts so you can then reconcile to the actual Pay Run transactions in Xero. This will clear everything up."

So, in other words. Xero creates a journal entry when you do a "manual" pay run, and you will never find a matching transaction because it doesn't exist. Until you create it, as Christopher explains.

From my perspective, this is more than a little confusing, and the Xero rep averred that lots of users make this same mistake. It seems like a "feature" that Xero might do well to modify - like for instance calling it "journal entry" rather than "manual."

I hope that helps.


Michael Weiss  

Oops - this was addressed to Brad Stees, not David. Sorry!

Michael Weiss  

I am one of those users with that same mistake. Christopher's instructions did help with that situation.

Carolyn Jackson  

Great! Glad I was able to pass along something helpful.

Michael Weiss  

I wanted to add a comment. Our company was using ADP before and we are much happier with Xero. The main reason was with ADP you had to double entry and had to submit the information earlier and had less control. With Xero and direct deposit it is rather simple to do payroll.

With that said there are still some issues that Xero needs to work out.

1. When setting up Xero payroll they should provide more assistance to avoid mistakes that are hard to correct later (See below).
2. The setup allows you to specify which bank account you want payroll to come out of and you can specify another account for the taxes to come out of. What Xero doesn't tell you is that it needs to be the same account, because the tax transactions automatically assume you are taking taxes out of the same account you pay payroll out of. So if you use two different accounts it will screw Xero reconciliation up.
3. During setup it is easy to put the wrong tax information in and then once you file you can't correct it easily or adjust old payroll taxes. In our case the worker inputted 3.4% as .0034 but the system changed it to .000034, or in effect 0% unemployment tax rate.
4. When preparing for payroll we were doing a draft payrun to calculate what funds needed to be available. We didn't know that once you do a draft payrun if you change the hours after that it doesn't auto update. You have to delete the payrun and or reset it to get it to update. So we had one period with the right time in time sheet, but payrun didn't match.
5. If your time-sheets are not approved when doing a payrun it won't use the time sheet but the worker schedule to calculate payroll. So if you have a 40 hr worker and they worked 32 hours, but you don't approve the time sheet and hit payroll it will give them 40 hours.

The final thing is most places I have worked you want to see your total employee burden which generally would include workers compensation. As of yet Xero doesn't include the ability to have WC calculated with the pay period. This means I have to use Excel to do this outside of Xero, where as if they had this function everything could be done in Xero.

Smith Joshua  

At Michael W. - I too made the "manual" mistake on my first pay run (today). Did support give you any info on how you might delete the manual pay run after it's been paid?

Mike Brasovan  

Hey Mike,

Xero doesn't allow you to delete a pay run - but I don't think that's the best away to go in this circumstance, anyhow.

I would just stick with the Manual pay run as you have done it, but make a note to yourself to be careful with how you reconcile the payments. Because the manual pay run is a journal entry, Xero doesn't create a regular transaction that you can find and match and reconcile to your bank statement line. So when you reconcile your bank, you will need to create a new "spend money" transaction (under the "create" tab) in the amount of the employee check, and then you will need to direct this spend money transaction towards the "payroll liabilities" account.

I recommend that you send an email to Xero support to just double-check on all of this. I am not a Xero expert; I have just learned by making the same mistake multiple times.

Hope that helps -

Michael W


Michael Weiss  

I work for a CPA firm and process many payrolls in many different programs. Xero is by far the WORST program I have used for payroll. It is very rigid in what it allows you to do, very difficult to make changes, NO TELEPHONE SUPPORT when there's a problem...the list goes on and on. I much prefer Quickbooks for payroll. Today my client's employees have not received their direct deposits for today's payroll. I have a Xero confirmation email that direct deposit payments have been submitted for payment on today's date, the money has drafted from our bank account, but no direct deposits. AND I CANNOT CALL ANYONE! One hour later and I'm still waiting on an email response. Do I write a paper check and risk the chance that they're paid twice?! Xero makes me look bad as an accountant. I would NOT be using Xero if it were not the client's choice of an accounting system.

Beth Carter  

Hi Beth - what a pain! Please report back on how it resolves, if you don't mind. I am considering using Xero Direct Deposit, but your experience makes me reconsider.

Michael Weiss  

They're blaming it on Forte, the third party which collects payments from the bank account and transfers the payments to employees. So far, no resolution. "They will update as soon as they have more information." I'm sure they're scrambling...this is a disaster if it's nationwide.

Beth Carter  

I haven't had an issue as of yet with payments being late, except you do have to keep in mind the 5 day wait. So if there is a holiday that falls during the period then that day doesn't count.

Considering I use other payment systems where it clears in 1-2 days I was wondering why Xero takes 5 days. Then I found out they make money for everyday of float of the payment so it's not in their interest to shorten the period of time.

I am glad you mentioned using Quickbooks pay as we had not tried that yet.

I agree for sure Xero appears to be too rigid. Doesn't allow you to easily fix payruns or invoices etc...

Smith Joshua  

The 5 day delay wasn't the problem...I schedule payroll well before the cut-off to avoid such problems. Xero has admitted that Forte had an issue with the holiday. Hopefully this is an isolated incident. In my latest email they tell me that "senior management is aware of the situation and has voiced disapproval regarding this." Whew! What a relief.

Beth Carter  

We have run into the 5 day payroll processing issue with another provider (ZenPayroll). It was explained to me that has to do with a business process of ensuring that the debit from the employer's bank account clears before sending funds to the employees. ADP and others essentially are assuming that the payment will go through in order to shorten the processing time. However, if the debit from the employer's account does not clear, the money has already been sent to the employees' accounts. At that point, the payroll processor needs to contact the employer for a "collections" like process to obtain the missing funds.

Can anyone tell me about the time sheets function? Can CSV/Excel files with timeclock information be imported into Xero, or does it all need to be manually keyed?

Dean Wilson  


I know what you speak of, but that is a two day process not five. For example the other week their was a problem so instead of going through Xero we had to deal directly with their payment provider (Forte). When we went directly to Forte they were able to do the payment that day with no wait. In all fairness they did float it for us, but only by one day. They told us they only need two days. So for a Friday payroll they take the funds out on Thursday. The 5 day wait is an artificial requirement from Xero. Keep in mind one of my clients is FinTech and I have been in the negotiation meeting on this type of topic. It's a revenue stream for them to float. My point is Xero is making a mistake using that as a revenue stream as it adversely affects the customer experience. If they want to monetize it make it a paid option for 2 day.

Smith Joshua  


I have no dog in this fight. I have spoken with several payroll companies. It seems that both transfer methods are used, each with +/-, not all of which are visible to the employer/customer.

I prefer not to use the 5 day process, as most of our employees are hourly - it would be a giant hassle to meet the 5 day process and not further stretch out the time when our people actually get paid - not even factoring in bank holidays.

Dean Wilson  

Hi team, I wanted to clarify a few things here.

Right now, there’s a 5 day wait for direct deposits because of the ACH system used. We’re looking into ways of decreasing the wait for payments while still maintaining a high level of protection against fraud - which can be a problem with fast moving payments. We’ll update you here when we know more.

Also, while possible, we don’t make money on the float - that’s not what we’re about.

Beth, I know that it’s all sorted for you now but just wanted to confirm that this was a one-off issue where Forte experienced an issue processing payments because of a banking holiday.

Brittany H (Community Manager)  

We've had some clients take issue with the 5 day processing period as well. It's not only the financial float, but the fact that the bank line item reads "Forte."

Those that we've transitioned from Paychex or ADP were accustomed to same day direct depositing. While not a deal breaker, it's one of the largest competitive disadvantages we've faced so far.

John Blackwell  

Thank you for creating this community and allowing us to share the pros and cons of the different payroll systems. The discussion is invaluable.

Adriana Hartley  

So great to hear, Adriana!

Brittany H (Community Manager)  

We were formerly using Xero's old pay run feature, so we are coming from never having a full featured payroll service. This is definitely nice in ways. Lots of calculations we will no longer have to do. A running total of payables kept for taxes/filings which is nice.

There are some definite drawbacks though. For one, there is no support for workers compensation (in Washington this is referred to as L & I). We are resorting to a workaround by using some of the available deduction and benefit categories to create these figures on pay runs. Not sure why Xero could not simply have a new category for workers comp and allow us to at least manually calculate this as an employee deduction and an employer amount to be paid. Better yet, if it would allow you to set a rate per employee that only applies to regular hours that that is essentially all we need. It's a simple solution for us in Washington state, though maybe it is more complex in other states.

Another issue is that there is no option for automatically creating payable transactions for retirement related pay items. This comes through our bank account as one lump sum, and with the previous pay run feature we could use the "Find & Match" option to find the relevant payables. No longer the case. You have to manually create a spend money transaction and assign the amounts to the correct accounts. Inputting this manually leaves this open to error, and getting the accounts out of balance.

Another annoyance, for those of us old schoolers still hand writing checks, is there is no easy way to correct the automatic check numbers assigned to each employee payment. Xero asks for the starting check # and takes care of the rest, but you have to be very deliberate in ensuring your checkbook is lining up with each employee payment. Xero lets you cancel a check # but it says it will just automatically re-assign a new #. Why can't I plug in the number manually? This area and others seem a little to locked down than is necessary.

Andrew St.Hilaire  

As someone currently in the 'research' phase for Xero, I have to say, I'm not loving what I'm finding. Currently an QB Online user, running a small business, I don't have time for unnecessary complexity.

We are in Texas and are hiring a new employee out of Washington at the end of the month. From my research, the Worker's Compensation insurance is going to be a pain to account for AND there's no current support for direct deposits to this state, meaning I have to add mailing physical checks to my to-do list.

QBO offers all of this of the box, if for a nominal fee.

This, paired with what I've discovered for calculating Sales Tax in Xero; exporting Sales data monthly to third-party Alavara and then having to pay to file online (currently FREE in QBO), I fail to see the benefit of switching.

Stephanie El-Hajj  


One reason we chose Xero vs QB is xero was adding a lot of features and we thought they would pass up QB in a short orde. Instead they just bogged down with very little new useful features. Also there other product is workflow max is even worse. We were going to switch to Odoo but at the last minute they did the huge money grab. So in short xero and odoo both made QB look like a pretty good option.

Smith Joshua  

I started using Xero payroll for California after using the accounting software for a while. The accounting software is fine but I strongly advise that you don't use their payroll services. Basically they don't really account for the particular requirement for a given state. They expect you to anticipate and know many nuances of the state's requirements that can easily wind up in late payments or incorrect payments unless you are deeply versed in the details of a state's payroll rules. This entirely defeats the purpose of a payroll service in my opinion. Long story short, I wound up with all sorts of fines (hundreds of dollars) and Xero refuses to take any responsibility. Their payroll service is half-baked at best.

Jonathan S  

Forte... The worst payment system. Payroll very unprofessional. Not recommended. avoid at all cost.

Nikita Volchetskiy  

Yeah, I have agree. I would not use Xero for payroll. I have a client that is really really wanting to use it

Marcus Jackson  

We are almost a full year through using Payroll, and there have been a number of struggles. The issues I mentioned in my previous post remain. Xero did make it easier to fix a pay run, but we've found most of our pay runs from the year are locked, so not much help there. We have a couple of tax calculations that were off (our error) for the better part of the year. I really just want to fix this with a once for all adjustment, but I'm being told I need to back out all the affected payruns and redo them. Ugh.

Lots of pay items in the "Bills" area that get in the way of other bills we need to be paying. These are very hard to reconcile and get rid of with your actual tax payments.

Andrew St.Hilaire  

I am a QuickBooks ProAdvisor and had hoped that Xero payroll would eliminate the need for me to run payroll separately in QuickBooks, but it has not. QuickBooks Desktop payroll is unfortunately far superior to Xero's payroll for many reasons (including the ones mentioned by Andrew St. Hilaire above).

Susan Moore  

I have to agree with above sentiment. The payroll feature is a nice offering, but it has not been worth the trouble. I have had to make corrections every year and have had to become a payroll expert to avoid mistakes (which do take a long time to resolve).

I started calculating all my own values and form entries manually in excel to check the Xero values. I think going forward I will be just submitting the forms myself and doing a manual journal with the payroll entries.

I think Xero has the accounting portion working well, payroll unfortunately is just a teaser which ultimately results in a lot of lost time and extra effort. Luckily it's just me otherwise I would be issuing corrected W-2's to my employees along with all the other corrected forms I had to submit over the years.

Zac Schramm  

We switched to Gusto (formerly Zen Payroll) and have never looked back.

Andrew St.Hilaire  

I second that. Gusto is awesome. It's so easy compared to Xero, and it's basically fool-proof. With Gusto, it's almost impossible to make a serious payroll or tax error. With Xero, I was always worried I would screw something up if I clicked the wrong button or forgot to review the tax submittals within the appropriate timeframe. And the few times I did screw something up, it seemed like there was very little I could do to make corrections afterwards. Another things about Gusto: customer service is excellent. It's totally worth the additional expense for payroll. No, I don't work for them :)

Michael Weiss  

Xero payroll is seriously flawed and is the worst choice you could make. Poke around in the threads for many reasons why. Do not be sucked in by free. The amount of time you will spend, and your accountant will spend, making it work as it should will cost you more than whatever you would have spent on a payroll service. Save yourself the headache and go with the service. There are some that integrate with Xero, and those are worth a look before you go with one that doesn't. I have used Gusto in the past, and it's very easy to use and integrates seamlessly. I'm currently using SurePayroll, and it's great as well.

Nancy Wauchope  

Xero announced today they are discontinuing their US payroll feature (not sure about other countries). Glad we jumped ship long ago! Xero just bit off more than they could chew with Payroll, so I'm not surprised in the least to see them walk away from it now.

Here's the announcement from the email I got.

What about payroll?
Last month, we announced a partnership with Gusto to deliver full-service payroll across all 50 states. On November 1, our new Xero plans will not include payroll and Gusto will become our preferred and integrated payroll solution. If you already use Xero payroll, you can continue until the end of 2018. You will receive an email shortly with details about migrating to Gusto, including a limited-time offer.

Andrew St.Hilaire  

So now we have to increase our monthly cost by $45/mo to have payroll? Seems like the end of Xero for me.

Zac Schramm  

Oh wow! Same here.

Thanks for sharing.

John Blackwell