Troubleshooting direct deposit for payroll

Learn why not all of your accounts will work for direct deposit for payroll, why your direct deposit account's status is on hold, why a direct deposit payment to an employee was rejected or how to follow up a payment cancelation.

Why can’t I use some of the bank accounts I have connected to Xero for direct deposit?

Direct deposit is an automatic electronic transfer that allows regularly scheduled payments, such as payroll payments to be made directly from your business bank account to a payee account, such as your employee's bank account.

Both the sender and the receiver need checking or savings accounts to make this work. If you have accounts within Xero that are not checking or savings accounts, you cannot use these as the source accounts for direct deposit.

Why is the direct deposit account's status on hold?

The direct deposit account status has a status of on hold because:

  • You changed your direct deposit bank account, but the process is not yet complete.
  • The bank account in Payroll Settings does not match the bank account for direct deposit. Either:
  • You changed your company's legal name or tax ID in Xero. Xero will email you about registering for direct deposit again.
  • Multiple direct deposit bank account debits failed.

Need more help?

Click the Contact Xero Support button at the bottom of any Help page. Include your Xero organization name with your request. You'll need to log into Xero if you want to attach a file.

Why was a direct deposit payment to an employee's account rejected?

A payment to an employee is rejected because Xero cannot withdraw the money from the organization's direct deposit account, or the employee's bank returned the payment.

Xero cannot withdraw money from your direct deposit bank account

If Xero cancels a payment because it cannot withdraw all the money from the direct deposit account, contact your bank.

The employee’s bank returns the payment

If the employee’s bank returns the payment, the employee must contact the bank to determine the issue.

You may need to:

Canceling payments

Xero is unable to cancel payments once they have been issued. We recommend that you contact your bank within 4 days of issuing the payment. Typically, payments issued to the bank remain in escrow, or hold status, for up to 4 days.