Check your setup complies to the National Employment Standards (NES)

There’s no doubt, Xero is an awesome payroll and accounting system for small and medium sized businesses. But out of the box, it’s not designed to enforce good payroll compliance practices.

An endless number of Australian businesses (of all sizes and industries) are finding that their payroll environment has issues. So, we’ve put together a Xero payroll compliance checklist of common pitfalls to look out for – so you don’t find yourself in hot water.

Here’s a free Xero compliance checklist PDF to save for later.

Xero checklist

Super Guarantee Compliance

1. Check Xero Pay Items are configured correctly

Identify all pay items in Xero that are configured as being exempt from the super guarantee contribution (SGC). 

Why is this important?
You could be underpaying super contributions for employees by not including superable earnings.

How to work out which pay items are subject to SGC?
The Australian Taxation Office (ATO) specifies Superannuation Guarantee Contributions (SGC) be paid against Ordinary Time Earnings (OTE). OTE can include payments for overtime, allowances, bonuses, commissions. See this ATO page for more information: List of payments that are ordinary time earnings.

How do I change the setting for pay items?
Go to Xero pay item settings and update the ‘Exempt from SGC’ flag in Xero for the items you wish to exclude.

Xero payroll
Tip: Here’s a  Free tool that automatically checks your super health by scanning your Xero environment for issues. It then allows you to quickly review & ignore known exempt pay items, all at once.

2. Check that employees SGC rate is setup correctly

In Xero, SGC can be configured in the employee Pay Template to be either a “fixed rate”, a “percentage of earnings”, or the “statutory rate”. For normal employees, it’s better to select “statutory rate” as Xero maintains the rate and automatically updates it when it changes (e.g. on 1st July 2021 the rate changed from 9.5% to 10%, and continues to change).

Why is this important?
You could be underpaying Xero payroll employee super contributions if the SGC rate is a percentage or fixed amount.

How do I change the SGC rate?
Go to the Pay Template for the affected employee and select their SGC super fund. Update the calculation type to ‘Statutory Rate’.

Statutory rate
Tip: Paytools can run a complete check of your employees to identify any SGC rates that might be configured incorrectly. This way you can be confident your super setup is on point.

Here’s an example of some employees that were flagged by the SGC rate check in Paytools:

Xero SGC check

Minimum Wage Compliance

1. Check Xero payroll employees are being paid above the National Minimum Wage

The national minimum wage applies to employees not covered by an award or registered agreement. As of 1 July 2021 the national minimum wage is $20.33 per hour or $772.60 per week.

Why is this important?
You could be paying your employees less than the minimum wage, leading to wage theft.

How do I change an employee’s wage in Xero?
Go to the Pay Template for the affected employee and select their earnings line. Update the annual salary or hourly rate.

Please note: Employees covered by an award or registered agreement may be higher than the national minimum wage. Apprentices, trainees or employees with disability pay rates may be under the minimum wage.

Xero payroll
Tip: Run a Paytools Minimum wage check every time you hire a new employee to check that they’re being paid an hourly rate above the minimum wage.

Here’s an example of an employee that has been flagged for review in Paytools:

Paytools minimum wage

Leave Entitlement Compliance

1. Check Xero Annual Leave entitlement is setup correctly

Identify any Xero payroll employees who have annual leave entitlements configured incorrectly compared against the National Employment Standard (NES).

Under the NES, full-time and part-time employees get a minimum of 4 weeks of annual leave, based on their ordinary hours of work. For more information, visit the Fair Work Website.

Why is this important?
You may be not complying with the minimum annual leave entitlements under the National Employment Standards.

How do I change an employee’s annual leave entitlements in Xero?
Go to the leave tab for the affected employee and click on their leave balance.

Check the leave calculation method to ensure they’re setup to receive 4 weeks annual leave (or pro-rata for part timers). Make sure unused balance is set to ‘Paid Out’.

Xero Annual leave
Tip: Paytools Annual Leave checks streamline this process by automatically flagging any Xero payroll employees with misconfigured annual leave items.

Here’s an example of some employees with issues:

Paytools - AL check

2. Check Xero personal leave is setup correctly

Personal leave is based on an employee’s ordinary hours of work and is 10 days for full-time employees, and pro-rata for part-time employees. For more information, visit the Fair Work Website.

Why is this important?
You are obligated to give a minimum of 10 days of personal leave for your employees under the National Employment Standards.

How do I change an employee’s personal leave entitlements in Xero?
Go to the leave tab for the affected employee and click on their personal leave balance.

Check the leave calculation method and hours accrued to ensure it equals to 10 days per annum (or pro-rata for part time employees). Note personal leave does not need to be paid out on termination.

Xero - Personal leave
Tip: By using Paytools Personal Leave check, you can surface any employees with issues in just one click.

Here’s an example of some results from Paytools:

Paytools - PL check

These are just a few common issues we’ve seen across our Xero customers in Australia. With so many unique payroll use cases and changing laws – there’s a long list of things you need to keep on top of. 

But luckily, Paytools can give you some peace of mind knowing that you’re meeting basic minimum payroll setup requirements. By accessing our 14-day free trial, catch compliance issues early for an easy fix.

We also have a pay review feature that lets you quickly explore pay run results, browse through historic pays and compare the results of any two pays. It speeds up the reconciliation process by:

    • Surfacing variances between compared pays
    • Highlight new employees and payments for the current payrun
    • Allowing you to drill down into employee records and payslips in two clicks

Don’t forget, we have a PDF version of this checklist you can download for later.

Hope you found this article helpful! If you have any additional questions about payroll compliance, get in touch. Our friendly Melbourne-based team is always up for a chat.