Xero payroll: run pay runs with Gusto and stay compliant

Published Saturday 28 February 2026

Table of contents

• What is Xero payroll?
• Key features of Xero payroll
• How Xero payroll handles tax compliance
• Employee self-service saves you time
• How to choose payroll software
• Apps and integrations that work with Xero payroll
• How to get started with Xero payroll
• Simplify your payroll with Xero
• FAQs on Xero payroll

Key takeaways

• Choose payroll software that integrates directly with your accounting system to eliminate manual data entry and reduce reconciliation errors between separate platforms.
• Prioritize automated tax compliance features that calculate withholdings, submit deposits, and file forms automatically to avoid penalties and missed deadlines.
• Implement employee self-service portals to reduce your administrative workload by letting team members access pay stubs, update personal information, and download tax forms independently.
• Evaluate cloud-based payroll solutions that offer mobile access and real-time reporting to manage payroll from anywhere while maintaining visibility into labor costs and tax liabilities.

What is Xero payroll?

Xero payroll is cloud-based payroll software that integrates directly with Xero accounting. In the US, Xero partners with Gusto to deliver full-service payroll, combining Xero's accounting platform with Gusto's payroll expertise.

This integration means your payroll data flows automatically into your books. Figures transfer automatically, eliminating manual reconciliation between separate systems.

Xero payroll handles the core tasks small businesses need:

• Wage calculations: Compute pay for salaried, hourly, and commission-based employees
• Tax withholding: Calculate federal, state, and local payroll taxes automatically
• Direct deposit: Pay employees electronically on your schedule
• Compliance filing: Submit payroll tax forms to the appropriate agencies
• Employee access: Give your team online access to pay stubs and tax documents

Key features of Xero payroll

Xero payroll combines automation with flexibility to handle the payroll needs of growing small businesses. Here's what you get.

Automated tax calculations and filing

Automatic tax calculations remove the guesswork from payroll. The software calculates federal income tax, Social Security, Medicare, and applicable state taxes based on each employee's W-4 information. For example, the IRS sets the social security tax rate at 6.2% and the Medicare tax rate at 1.45% for both employee and employer.

When it's time to file, Xero and Gusto handle the submissions. Quarterly and annual tax forms go directly to the IRS and state agencies on your behalf.

Direct deposit and flexible payment schedules

Direct deposit gets employees paid faster. Funds typically arrive within one to two business days, depending on your bank.

You can set up multiple pay schedules to match how your business operates:

• Weekly pay runs for hourly staff
• Biweekly schedules for salaried employees
• Custom schedules for contractors or seasonal workers

Employee self-service portal

Employee self-service reduces your administrative workload. Team members log in to view their own pay stubs, download tax forms, and update personal details like addresses or bank accounts.

Employees find their own copies of W-2s and answers to questions about year-to-date earnings.

Digital pay stubs and W-2s

Digital document storage keeps payroll records organized and accessible. Pay stubs generate automatically with each pay run, and W-2s are available for download at year-end.

Both you and your employees can access these documents anytime from the cloud. Everything stays organized digitally.

Mobile access for you and your team

Mobile access lets you run payroll and review reports from anywhere. Employees can also check their pay information on their phones.

Businesses with remote teams or field workers who aren't at a desk during the day benefit from mobile access.

Real-time payroll reporting

Payroll reports give you visibility into labor costs, tax liabilities, and payment history. Run reports on demand to see:

• Total payroll expenses by period
• Tax liability summaries
• Employee earnings breakdowns
• Time-off balances and accruals

Reports sync with your Xero accounting data, so your books stay current without extra effort.

How Xero payroll handles tax compliance

Payroll tax compliance is a major concern for small business owners. Mistakes when calculating taxes or missing filing deadlines can result in penalties and frustrated employees, especially with strict rules requiring businesses that accumulate $100,000 in liability to deposit the tax by the next business day. Xero payroll automates the calculations and filings that keep you compliant.

Automated federal and state tax payments

The software calculates how much to withhold from each paycheck based on current tax rates and employee W-4 elections. It then schedules and submits tax deposits to the IRS and state agencies on your behalf.

The system tracks deposit deadlines and remembers which forms to file for you. The system handles:

• Federal income tax withholding
• Social Security and Medicare (FICA) taxes
• Federal unemployment tax (FUTA)
• State income tax and unemployment insurance

Payroll tax filing and year-end forms

Xero and Gusto prepare and file your required tax forms automatically. This includes:

• Form 941: Quarterly federal tax return, which must be filed by the last day of the month that follows the end of the quarter
• Form 940: Annual federal unemployment tax return
• State quarterly reports: Varies by state
• W-2s: Annual wage statements for employees, which employers are required to file electronically if they submit 10 or more information returns
• 1099s: Year-end forms for contractors (if applicable)

Year-end forms are available digitally for you and your employees, with copies filed to the appropriate agencies.

Stay up to date with tax law changes

Tax rates and rules change regularly. Xero payroll updates automatically when federal or state tax laws change, so you don't need to manually adjust withholding tables or worry about using outdated rates.

Businesses operating in multiple states benefit most, since each jurisdiction has different rules.

Employee self-service saves you time

Employee self-service shifts routine payroll questions away from you. Instead of fielding requests for pay stubs or updating addresses manually, your team handles these tasks themselves through an online portal.

Employees access pay stubs and tax forms online

Team members log in to view and download their pay stubs after each pay run. At year-end, W-2s are available in the same portal.

This eliminates back-and-forth emails and reduces the time you spend on administrative requests.

Team members update their own information

Employees can update their own:

• Home address
• Direct deposit bank accounts
• Tax withholding elections (W-4 changes)
• Emergency contact information

Changes sync automatically with your payroll records. You approve updates that affect pay or taxes before they take effect.

Payday notifications keep everyone informed

Employees receive email notifications when their pay has been deposited. This reduces questions about when funds will arrive and confirms that each pay run processed successfully.

How to choose payroll software

Selecting the right payroll software depends on your business size, budget, and existing tools. Here's what to evaluate.

• Integration with your accounting system: Look for software that connects directly with your accounting platform. This avoids manual data entry and reconciliation errors. Xero payroll syncs automatically with Xero accounting.
• Ease of use: Look for clear workflows and built-in guidance that you and your accountant can navigate. Complex interfaces lead to mistakes and wasted time.
• Cloud-based access: Look for cloud-based software that lets you run pay runs from anywhere. This gives employees online access and eliminates the IT burden of on-premise systems.
• Scalability: Look for software that handles additional employees, multiple pay schedules, and new states without requiring a system change.
• Automated tax compliance: Look for software that calculates withholdings, submits deposits, and files forms automatically. Manual tax work creates unnecessary risk.
• Reporting capabilities: Look for reports on labor costs, tax liabilities, and employee earnings. Check that the software offers what your accountant needs for financial statements and tax planning.
• Support and onboarding: Look for responsive customer support and setup resources. Consider how you'll get help when questions arise.

Apps and integrations that work with Xero payroll

Xero's open platform connects with hundreds of apps to extend what your payroll can do. This lets you build a system that fits how your business operates.

Common integrations include:

• Time tracking: Apps like Deputy and TSheets sync employee hours directly to payroll, reducing manual timesheet entry
• Scheduling: Workforce management tools help you plan shifts and forecast labor costs
• Expense management: Connect expense tracking to capture reimbursements in payroll
• HR software: Sync employee records between your HR system and payroll to keep data consistent
• Point of sale: Retail and hospitality businesses can connect sales data to labor reporting

You can browse available integrations in the Xero App Store and connect the tools your business already uses.

How to get started with Xero payroll

Setting up Xero payroll takes most small businesses a few hours. Here's the process.

1. Create or access your Xero account: If you're already using Xero for accounting, you'll add payroll to your existing subscription. New users start by setting up a Xero account.
2. Connect with Gusto: In the US, Xero partners with Gusto for payroll processing. You'll link your Xero account to Gusto during setup.
3. Enter your business information: Add your company details, including your EIN (Employer Identification Number), business address, and state tax registration numbers.
4. Add your employees: Enter each employee's name, address, Social Security number, pay rate, and W-4 information. Employees can also complete their own onboarding through the self-service portal.
5. Set up pay schedules: Choose how often you'll pay employees (weekly, biweekly, semimonthly, or monthly) and set your regular payday.
6. Connect your bank account: Link the bank account you'll use for payroll deposits and tax payments.
7. Run your first payroll: Review the calculated amounts, approve the pay run, and submit. Employees receive their first direct deposits according to your schedule.

If you need help during setup, Xero offers onboarding support and your accountant can assist with configuration.

Simplify your payroll with Xero

Payroll must be accurate. Mistakes when calculating taxes or missing filing deadlines can result in penalties and frustrated employees. The right software removes much of this burden.

Xero payroll automates the calculations, handles tax filings, and gives your employees self-service access to their information. Your payroll data syncs directly with your accounting, so your books stay current without extra effort.

Ready to simplify your payroll? Get one month free and see how Xero makes paying your team easier.

FAQs on Xero payroll

Here are answers to common questions about using Xero for payroll.

What is Xero payroll?

Xero payroll is cloud-based payroll software that integrates with Xero accounting. In the US, Xero partners with Gusto to provide full-service payroll including tax calculations, direct deposit, and compliance filing.

Can Xero be used for payroll?

Yes. Xero offers payroll as part of its small business platform. US customers access payroll through Xero's integration with Gusto, which handles pay runs, tax filings, and employee self-service.

How does Xero payroll compare to QuickBooks?

Xero offers a larger selection of apps and more integration flexibility, while QuickBooks provides more built-in reporting tools. Your choice depends on which accounting platform fits your workflow and whether third-party integrations matter to your business.

Does Xero payroll work for contractors and construction businesses?

Yes. Xero payroll handles multiple pay rates, various pay schedules, and job costing, which construction businesses need. You can also pay contractors and generate 1099 forms at year-end.

How much does Xero payroll cost?

Xero payroll pricing depends on your Xero subscription plan and the number of employees. Visit the Xero pricing page for current rates and to see what's included at each plan level.