Pay and Tax types (for Xero's Pay Run feature)

Xero uses pay and tax types for pay run reporting and liabilities payable, calculating the pay run, and formatting payslips. The pay and tax type also determines other fields you need to complete when adding pay items.

Pay and Tax types

  • Wages include regular wages, holiday pay, sick pay, overtime, bonuses, commission, back-pay, piece-pay.

  • Allowances are taxable pay outside a specific wage classification because it depends on other work conditions or scenarios, such as tool allowance and safety officer allowance.

  • Deductions reduce the taxable pay values, such as union fees.

  • Tax is an amount withheld from an employee's pay to pay the tax department.

  • Non-taxable Allowances are payments outside a specific wage classification because they depend on other work conditions or scenarios.

  • Post-tax Deductions are taken from the pay after tax is calculated.

  • Employer Contributions are paid on behalf of the employee, usually for a Pension / Superannuation. This is a cost to the employer.

Secondary fields for Pay/Tax types

When you select a Pay/Tax Type, you will see additional fields to complete depending on what you have chosen. If you see:

  • Account for reporting is an account from your chart of accounts and will apply to wages, allowances, non-taxable allowances or employer contributions.

  • Default Rate:

    • For wages, choose a factor that your employee's wage is multiplied by.

      Image showing the Pay Item screen and the Default Rate field.

    • For allowances, deductions, non-taxable allowances and post-tax deductions, enter an hourly rate.

  • Choose who to pay:

    • Complete the Contact to make payments to field to make payments for deductions, taxes, post-tax deductions or employer contributions.

    • (Optional) Complete Payment Frequency and Next Payment.

      Image showing the Pay Item screen and the contact to pay fields.

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