Xero Payroll: what it does each month
The monthly payroll process and payroll journals - explained
Xero Payroll manages your director payroll and any employee payroll automatically, submitting to HMRC each month without manual HMRC portal entry.
The monthly payroll process
We run payroll in Xero Payroll each month. Xero calculates Income Tax and National Insurance contributions (NIC) based on your tax code and salary. We review the payslips, post the payroll journal to the accounts, and submit the Full Payment Submission to HMRC automatically. You receive a payslip notification and the net salary is transferred to your bank account.
Payroll journals in Xero
After each payroll run, Xero posts a journal allocating the gross salary to a wages expense account, the Employee NIC and Income Tax to a PAYE liability account, and the Employer NIC to an Employer NIC expense account. When you make the PAYE payment to HMRC on the 22nd, reconcile it against this PAYE liability entry rather than coding it as an expense.
💡 Good to know: Do not make payroll changes (salary increases, bonus payments, adding an employee) without telling us first. Changes made in Xero Payroll affect the FPS submission to HMRC and must be coordinated with the correct effective date.
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