Create a custom pay item

Set up the types of earnings, deductions, leave, and reimbursements your organisation plans to use for payroll.

  1. In the Settings menu, select General Settings.
  2. Under Features, click Payroll Settings.
  3. Click the Pay Items tab.
  4. Select the type of pay item (for example, Earnings).
  5. Under the Add button, select the attribute of the pay item you are creating (for example, Leave has the options paid or unpaid).

    Image showing the pay type list under the Add button.

  6. Name the new pay item and enter any other details as needed.
  7. Click Add.

Add recurring pay items to your employees' pay templates so they are included in each pay run.

Types of pay items


Earnings rates are pay rates such as ordinary time or overtime. Ordinary time and other standard rates are available by default in Xero, but you may need to add other special rates.

Whether an earnings rate is locked or not, you can make changes to its:

  • Account
  • Type of units
  • Rate per unit
  • Exemption options

You won't be able to change the type or rate type once the pay item has been used. If you need to amend either of those settings you will need to create a new earnings rate instead.

Select Reportable as W1 on Activity Statement if you want the earnings rate added to the reportable amount at W1 in your activity statements and activity reports.


Deductions are payments taken out of employees' pay such as social club payments or salary sacrifice.

Select Excluded from W1 on Activity Statement if you want the deduction to reduce the reportable amount at W1 on your activity statements and activity reports.


Use reimbursement pay items to compensate your employees for out-of-pocket expenses or other expenses incurred as part of carrying out their normal work duties.


You can create and assign a custom leave type for different leave types to record the leave for employees in your organisation.