Chapter 6

Run payroll for your employees

Paying your employees right is essential. It’s also a legal requirement. Let’s take a look at the payroll process.

a person's hands holding a tablet with employee payrolll displayed

First, what is payroll?

Payroll is a list of your employees and the total amount of money you pay them. It includes salaries or wages, bonuses, allowances, and benefits. Deductions such as tax are also part of payroll.

Three ways to run payroll for employees

1. Spreadsheets or pen and paper: These methods are free, but they’ll cost a lot of time as you hire more people. Check that your local government agencies will accept these documents for tax reporting – as some won’t.

2. Outsource to a specialist: Professionals know the ins and outs of deductions and will help keep you onside with the tax office. But of course they cost more money, and you’ll need to communicate regularly about employee changes.

3. Online payroll software: Software packages can work out pay and deductions for each employee, then create payslips, and reports for tax authorities.

How to run payroll – from start to finish

Use this flowchart to see how to keep your business transactions separate from your payroll transactions and hold funds for taxes, deductions, and other payroll-related items.

After running payroll

  • You may need to send a report to the applicable tax offices after each payroll saying what you paid your employees and what you deducted from that pay, or this may be done annually
  • Ensure all deductions, including taxes, go to their rightful places by their due dates
  • Keep a secure record of the pay run even if your employee has left

How to keep all the money straight

Employers handle a lot of cash on behalf of their employees and the tax office. It’s a good idea to have a separate bank account for this. A payroll account will mean you’re less likely to spend someone else’s tax or retirement money accidentally.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

How to hire employees

Hiring help can improve your business, and your lifestyle. But it’s a big process. Here are the main things to keep in mind.

  1. Know your employer responsibilities

    You have a duty of care to your employees. Get familiar with your employer responsibilities before you start the hiring.

  2. Register as an employer

    You’ve considered the position you want to fill and your own responsibilities. It’s time to register as an employer.

  3. Write a job description

    You want the perfect employee. They want the perfect employer. Find out how to write a job description that stands out.

  4. The recruitment process

    Now the applicants are lining up. So how do you sort through them all and select the best fit for your business?

  5. Employee onboarding

    Employee onboarding is more than orientation. It’s setting expectations, building relationships, and providing support.

  6. Run payroll for your employees

    Paying your employees right is essential. It’s also a legal requirement. Let’s take a look at the payroll process.

  7. Manage employee evaluations

    Your employees need support too. They need to know if they’re on the right track. Employee evaluations help with that.

  8. Tools and guides for your business

    Now that you’re an employer, you want to strengthen your business. Xero’s got resources and solutions to help.

Download the guide to hiring employees

Learn how to hire employees and how to handle the admin that goes with it. Fill out the form to receive this guide as a PDF.

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