A well-configured Xero chart of accounts makes payroll journal entries faster, cleaner, and easier to reconcile. Here's the recommended setup.
Payroll expense accounts in Xero
| Account Name | Code | Type |
|---|---|---|
| Wages & Salaries | 477 | Expense |
| Payroll Tax Expense | 478 | Expense |
| Employee Benefits | 479 | Expense |
| Contract Labour | 480 | Expense |
Payroll liability accounts in Xero
| Account Name | Code | Type |
|---|---|---|
| Federal Income Tax Payable | 820 | Current Liability |
| FICA Payable | 821 | Current Liability |
| State Income Tax Payable | 822 | Current Liability |
| FUTA Payable | 823 | Current Liability |
| SUTA Payable | 824 | Current Liability |
| Health Insurance Payable | 825 | Current Liability |
| 401(k) Payable | 826 | Current Liability |
| Net Wages Payable | 827 | Current Liability |
Key Xero settings for each account
- Tax Rate: Set to "Tax Exempt" for all payroll accounts (no GST/VAT applies)
- Show in Expense Claims: Off for all payroll accounts
- Account Code: Use a logical numbering scheme — Xero imports require codes, not names
Best practices
- Use consistent codes across clients — it makes template sharing easier
- Don't use Xero's default payroll accounts if you're managing journal entries manually — create your own for clarity
- Lock the codes once set; changing them breaks historical import files
PostBooks stores your Xero account codes per client and applies them to every payroll import. Start free.