Set up your Chart of Accounts - Xero Integration

Introduction

A Chart of Accounts (COA) and Journal Integrations are vital parts of accounting and payroll systems. The COA is a structured list of financial accounts used by a company, categorising transactions like assets, liabilities, income, and expenses. It is customised to suit each client's needs, including payroll expenses, tax liabilities, and more. Here is what you need to set up your Xero Integration.

How to Prepare/Dependencies

Instructions

1. Log into your Employment Hero Payroll platform.
2. Navigate to Business > Payroll Settings > Business Management > Integrations.
3. Select Accounting from the drop-down to show available integrations
4. Click Add Xero.

5. Select Connect to Xero.

Accounting Integration

6. After establishing the connection, select the specific business where you want to send your payroll journal.
7. Decide whether you want to export your pay run data as a manual journal or an accounts payable invoice. You can also choose to have these posted as draft journals.
8. Once these have been created select back to chart of accounts to map accordingly.

Importing Accounts

1. Navigate to Business > Payroll Settings > Business Settings > Chart of Accounts.
2. Click Import Accounts. Since you are already connected to Xero, a list of accounts will be displayed.
3. Enable the accounts that you want to use in the chart of accounts mapping by clicking on the toggle button.

Default Accounts

• Payment Account: Also known as the "payroll clearing" account, this is used to reconcile the net payment amount of the payroll to the transaction from your bank account.
• Wages Expense Account: This account is utilised to record the gross wages expense for the pay run.
• Default Payroll Liability Account: If no specific liability account is set up, all deductions will be journaled to this account.
• PAYG Expense Account: Use this account only for non-standard accounting methodologies. It splits the PAYG expense from the wages expense if specified
• PAYG Liability Account: Also known as the PAYG clearing account, this tracks PAYG liability transactions.
• Superannuation Expense Account: Used to track SG super expense transactions.
• Superannuation Liability Account: Also known as the super clearing account, this tracks super liability transactions.
• Employee Expenses Account: Records employee expenses processed within the pay run, which are separate from employee wages.
• Employer Liability Expense Account: Records employer liabilities against an employee within the pay run.
• Employer Liability Account: Keeps track of general employer liability transactions.
• Leave Provisions: Optional setting to track the cost of any leave liabilities within the business. Further information on configuring leave provisions can be found here.

Pay Categories

Pay category transaction accounts allocate distinct wage expenses to various GL accounts. For instance, you can use them to track bonuses, paid leave, or allowances by assigning different GL accounts to specific pay categories.

If no pay category transaction account is specified, the default Wages Expense Account will be utilised.

Deduction Categories

Deduction category transaction accounts are utilised to allocate particular deductions to different GL accounts. If no deduction account is specified, the Default Payroll Liability Account will be automatically used.

Assigning a GL account to the Expense Account is optional and should only be done if you want the deduction amount to be posted as a debit entry against the designated GL. This, in turn, reduces the wages GL account by the same amount.

Expense Categories

Expense category transaction accounts are employed to allocate specific expenses to various GL accounts. In case you do not specify an expense account, the transactions will be automatically posted to the Employee Expenses Account.

Employer Liability Categories

Employer liability category transaction accounts are utilised to allocate specific employer liabilities to different GL accounts. If you do not specify a liability account, the transactions will be automatically posted to the Employer Liability Account by default. Similarly, if you do not specify an expense account, the transactions will be posted to the Employer Liability Expense Account by default.

Leave Provisions

Accounts that transactions will be posted to for leave liabilities are the specific GL accounts used to track the cost of leave entitlements within a business. These accounts are instrumental in recording and managing various types of leave liabilities, such as annual leave, sick leave, parental leave, and other forms of paid time off for employees. By allocating transactions to these accounts, businesses can accurately track their financial obligations related to leave entitlements and ensure proper accounting for such liabilities.

Location Specific Accounts

To segregate your GL based on location and allocate transactions to different GL accounts, you have the option to establish location-specific accounts. These accounts function identically to primary accounts but are exclusively applicable to the specified location. In this way, businesses can effectively manage and track financial data specific to each location, while maintaining consistency with the primary accounts' functionality.

1. Click Add to create a location-specific requirement.
2. Select location.
3. Update all required fields with the specific GL account information for that location.

Xero API does not permit writing transactions directly to a bank account. Therefore, you have two options available:

• You can submit your payroll information to Xero as a purchase invoice, similar to how the built-in Xero payroll works. In this case, the purchase invoice will be reconciled against the bank account transaction, and no separate transaction line is needed for the bank account.
• Alternatively, you can post the payroll data to Xero using a journal entry. If you choose this method, you'll need to create a payroll clearing account where the data can be posted. This payroll clearing account can then be used to reconcile against the bank account transactions.