Set up your organisation for pensions

If you are new to Xero payroll, you can set up auto enrolment for pensions as part of the onboarding process. Then you will be able to add employees and inform them about auto enrolment before you process your first pay run.

Set up your organisation

If you're setting up pensions for payroll in Xero for the first time, we recommend checking out our video series Setting up a workplace pension for an organisation in payroll in Xero (Xero U) to guide you through set-up, including details if you are using NEST or The People's Pension.
  1. From the Settings menu, select Payroll Settings.
  2. Click the Workplace Pension tab.
  3. Add a Staging Date if doesn’t already appear.
  4. If you get a message to import your staging date, click the small information icon icon, and click the link to find and verify your date.
  5. (Optional) If you want to postpone assessment by up to three months, enter a Workforce Postponement Date. The date you enter in this field will be automatically added to all your employee records. If you do postpone you can go straight to inform your staff about automatic enrolment.
  6. Enter information for:
    • Pension admin details. This includes Signatory Information for Auto Enrolment if you choose to postpone auto enrolment assessment.
    • Payment accounts.
    • Pension filing due dates.
    • Pension details. You can select one of the listed pension providers or 'Other' if you don't see your pension provider, or if you don't wish to electronically submit.
  7. Enter your Payment Defaults, which will apply to all your employees by default. You can customise them for each employee in their individual pay templates.

    When you make updates to the Payment Defaults or Pension Name in the Workplace Pension tab, Xero updates any associated current pay items automatically. This means that employee pay templates containing these pay items will also update automatically unless you have previously changed contribution amounts for specific employees manually.

    If you want these pay templates to include changes from the Workplace Pension tab in future, remove the pension pay item from the employee's pay template and add it back without changing the contribution amount.

  8. Choose a Pension Type. Either:
    • Net Pay Arrangement - This option gives you two further options of either a normal pre-tax pension pay item (a deduction which is taken from salary before tax is calculated so tax relief is already applied), or a salary sacrifice pay item (a deduction from gross earnings which is taken from salary before tax and NI are calculated. Tax relief is already applied).
    • Relief At Source - This option creates only a post-tax pension pay item, a deduction which is taken from salary after tax and NI are calculated. Tax relief is applied via the employee’s percentage field.
  9. If the pension you have set up uses only employee earnings between the NI bands, Lower Earnings Limit (LEL) and Upper Earnings Limit (UEL) for calculation, select the Yes checkbox for Calculate on Qualifying Earnings.
  10. Complete the Employee's Contribution fields:
    • Select the % of Gross checkbox.
    • If you have chosen a Net Pay Arrangement, set the full Percentage. If you have chosen a Relief At Source contribution, the basic rate of tax (currently set at 20%) should be taken from the percentage. For example, if the percentage is 3%, you should enter 2.4%.
    • Select your Liability Account.
  11. Complete the Employer's Contribution fields:
    • Select the % of Gross checkbox.
    • Set the Percentage. Xero creates a benefit pay item for employer pension contributions using the value entered here. Relief At Source arrangements have no effect on the employer percentage so this value is not reduced.
    • Select your Liability Account and Expense Account.

      Percentages for employees and employers can be higher than the current minimums and are set to rise from April 2018.

      The Pensions Regulator (The Pensions Regulator website)

      Image showing payment defaults

  12. Click Save.

If you receive an error message during enrolment, see our troubleshooting page.

Set up your employees in Xero

Enter your employee details so that you have the correct pension deductions and opening balances set up before you inform your staff.