Xero is an online double entry accounting software for businesses with 0–100 employees. Features of their service include invoice management, bank reconciliation, bookkeeping, and more.
When you connect your Gusto and Xero accounts, each time you run payroll, the details can be synced to Xero as a Bill (on eligible Xero editions) or as a Manual Journal (available on all Xero editions). You get additional levels of granularity within the entry based on earnings types, Gusto departments, and Xero Tracking Categories.
Click the dropdowns below to learn more about the integration.
Total wages, taxes, benefit deductions/contributions, reimbursements and contractor payments will now sync to your Xero account each time you run payroll.
If you'd like payroll reminders to be sent from Gusto to your XeroHQ dashboard, complete the steps below. Once you've set up the Xero payroll integration you'll have access to:
Follow the steps below to activate the Xero payroll integration:
You can sign in to your Gusto account with your Xero account. Once you’ve entered your credentials once, you can sign in with just one click.
If you’re a Xero customer who has been enrolled in automated migration and are working with the Gusto payroll migrations team, you’ll receive instructions in an email asking you to:
The next time you sign in to Gusto, click the Xero tile. You should be automatically signed in.
When setting up your mappings you will be prompted to add:
Once all payroll items are matched with the corresponding accounts, the building blocks are in place for the Bill or Manual Journal that Gusto will sync over into Xero.
The more accounts you choose when setting up your integration, the more detail there will be in the line entries on your Bills or Manual Journals, which enables you to run more detailed reports in Xero (expense reports, outstanding liability reports, etc.).
For example, if you'd like all wages from all employees to go to the same expense account, regardless of what type of earnings they are, you would select the exact same expense account for all earnings items. For reporting purposes you would have one expense account item measuring all earnings.
If you'd like to break out different types of earnings into different expense accounts you can make different account selections for each earnings type. For example, you could have one expense account for vacation pay and a different expense account for overtime.
To get started:
Job code mapping is another way to add additional granularity. Mapping accounts by job codes (as opposed to departments) is useful for businesses with multiple employees in the same role and when some employees work some hours in one role and other hours in another role.
This means you can have the earnings of one job go to one account and the earnings of a second job go to a different account. This will expand the entry we send over into the accounting software.
Gusto job codes and Xero Tracking Categories often mirror each other. This means payroll expense information synced over through the Gusto/Xero integration for a Gusto job code can be tagged with a corresponding Tracking Category.
You must have either job code or department mapping enabled to map to Xero Tracking Categories.
Assign employees to jobs
Before you map your chart of accounts by jobs, make sure each employee and contractor is assigned to at least one job. Here's how:
Salaried employees: edit their job title.
Hourly employees can have as many pay rates or jobs as you'd like. If an employee has multiple jobs, their paystub lists each job and its associated earnings.
Map job codes to Xero Tracking Categories
These transactions will be exported by job code to your accounting software account. If any jobs are left unmapped, they will sync based on the default chart of accounts mappings.
Department mappings are another way to add additional granularity. Mapping by departments (as opposed to job codes) is good for businesses who want to better understand payroll expenses of a department or a division. With department mappings you can use different accounts for the different payroll items within a department. This means you can have the earnings of one department go to one account and the earnings of a second department go to a different account. This will expand the entry we send over into the accounting software.
As an example, I have two departments: Design and Marketing. Before I enabled department mappings, all regular wages earned went to one "salaries and wages" expense account. After enabling department mappings, I can use two expense accounts: a "Sales Wages" expense account and a "Marketing Wages" expense account. When running reports in my accounting software I will have this additional breakdown.
Gusto Departments and Xero Tracking Categories often mirror each other. This means payroll expense information synced over through the Gusto/Xero integration for a Gusto Department can be tagged with a corresponding Tracking Category.
These transactions will be exported by department to your accounting software account. If any departments are left unmapped, they will sync based on the default chart of accounts mappings.
When setting up your mappings, you will simply align a department with a Tracking Category. The result will be the same accounts in your default mappings that are used for each department will now be tagged with Tracking Categories. The line entry will then tie to your dimensional reporting needs in your accounting software. You can even have a combination of different expense accounts with different Tracking Categories.
When setting up your mappings, you can associate specific project work to specific Tracking Categories. Mapping by projects (as opposed to job codes or departments) is good for businesses with is good for businesses who want to see total workforce costs by project in order to make business decision, such as adjusting hourly rates for clients.
Gusto projects and Xero Tracking Categories often mirror each other. This means payroll expense information synced over through the Gusto/Xero integration for a Gusto project can be tagged with a corresponding Xero Tracking Category.
You must have either project, job code or department mapping enabled to map to Xero Tracking Categories.
These transactions will be exported by project to your accounting software account. If any projects are left unmapped, they will sync based on the default chart of accounts mappings.
Since Gusto does not take any money for benefits or deductions, we include a mapping for benefit/deduction liabilities. This will create line items within the Bill and accrue an amount owed for the benefit/deduction. When the benefit/deduction is then paid to the correct party, in Xero you can offset your liability and zero out the amount owed.
Click here to learn more about mapping your accounts.
Q: If I update my mappings, can I re-sync a payroll to update the Bill?
A: You can re-sync a payroll from Gusto at any time. If you're syncing Bills, you will need to remove & redo any bank transactions from the Bill in Xero before re-syncing from Gusto. If you're syncing Journals, we will update the existing Journal. If you switch your transaction type, a new transaction will be created. To prevent duplicates, you will need to void previously synced Bills or reverse previously synced Journals.
Q: Do you book the wage expense as gross wages or net wages?
A: Gross wages, meaning the wage expense will include employee pay, employee taxes, and employee deductions. Employer taxes and employer contributions will have their own expense line item.
Q: Do you break out individual taxes?
A: You will see each Employer tax on a separate item in your Xero ledger. Employee’s taxes are lumped together with their wages. By transitioning to Gusto, tax payments will no longer come over to your balance sheet as a liability. Taxes are handled on a cash basis instead of an accrual basis—our tax debits for each payroll are considered a closed transaction.
Q: Can I post over individual employee payroll information?
A: Gusto does not currently support mapping for individual employees. Payroll information is pushed over at the company level.
However you can accomplish this by using Departments. Add one employee to each team, which can then map to specific accounts. Post this over to see the individual employee payroll details.
Q: Can I sync international contractor payments to my bookkeeping software?
A: At this time, international contractor payments are not supported by Gusto’s bookkeeping integrations. These payments will need to be added manually into your bookkeeping software instead.
If you have previously synced payrolls that aren’t mapped to Xero tracking categories, you can re-sync those payrolls if desired. Here’s how:
To view the newly synced bills in Xero, follow the steps above.
Follow these steps to send payroll data to Xero.
Note: If you do not see the Sync button, please confirm your integration is still actively set up and is not disconnected.
Q: What does the timestamp indicate?
A: The exact time Gusto successfully synced a payroll into the accounting software.
Q: Is there a way to retroactively sync all payrolls once I enable auto-sync?
A: Auto-sync will only work for the payrolls moving forward from the time it is set up. Any payrolls run before auto-sync was enabled will need to be manually synced.
Q: Can I re-sync an entry that has already been reconciled?
A: You can re-sync a payroll from Gusto at any time. If you're syncing Bills, you may need to remove & redo any bank transactions in Xero before re-syncing from Gusto. If you're using syncing Journals, we will update the existing Journal. If you switch your transaction type, a new transaction will be created. To prevent duplicates, you will need to void previously synced Bills or reverse previously synced Journals.
Because Gusto does not take any money for benefits or deductions, we include a mapping for a benefit or deduction expense and a benefit or deduction liability. This will create accounts within your accounting software that accrue an amount owed for the benefit or deduction over time.
When the benefit or deduction is then paid to the requesting party, you can offset your liability account and zero out the accrued amount owed.
Important: When money is pulled for an FSA or commuter benefit, before it is deducted through payroll make sure you don't create an expense but rather establish a receivable. It will be expensed in payroll when the amount is deducted. At that point with the deduction, then reduce the receivable.
Option 1: Create an entry from the bank debit (created by paying the benefit or deduction) and assigned that entry to the liability account to offset.
Option 2: Create a Bill or Invoice and associate that item with the liability account.
The date of an entry dictates what period the expense information will fall in. For example, an entry dated September 30 would fall into Quarter 3 financials, while an entry dated October 1 would fall into Quarter 4 financials. When a pay period has a payday (or check date) that falls in a different month or quarter, this can create problems when you go to balance your books.
Entry date options
Our accounting integrations give you the ultimate flexibility for reporting, allowing you to choose from three entry date options.
Note: If you elect to have the end of the pay period as your entry date, Gusto will default to the check date for any payroll with no pay period, such as an off-cycle payroll.
Change your entry date options
You can change your entry date selection anytime in Gusto.
Your payrolls will now sync over with Entry Dates based on your selection. If you need to go back and retroactively sync any payrolls with these new settings, you can do so.
When using an accounting software, there are two ways to reconcile and match expenses with withdrawals from the bank account.
Method 1: Cash is withdrawn > create a matching expense
Pull up the bank transactions from your integration with your bank account. When you see a withdrawal, create a corresponding expense.
Example: You bought a few items at the office supply store, and therefore see this bank withdrawal when looking at your bank transactions. You can now add a corresponding office supply expense for reporting purposes. The expense is now accounted for as demonstrated by the reduction in cash.
Method 2: Report an expense > cash is withdrawn > match the expense
Report a future expense. When you see the actual cash transactions, match the cash withdrawal with the expense that was previously reported.
Example: You forecast that supplies will cost $X amount of money at the beginning of the month, but the funds will not be withdrawn until the end of the month. You therefore report the expense. When the cash is withdrawn at the end of the month, you can indicate that the previously reported expense matches with this specific bank transaction.
When generating paper checks using your accounting software you may see an additional expense created on your books - this is because total gross wages are reported whether your employees were paid by direct deposit or by check.
This can cause issues when reconciling your expenses because the amount paid to employees may appear to be over reported.
Our preferred method is for you to print the checks from your Gusto account or hand write them to avoid expenses appearing as over reported. Then, you can easily reconcile the total payroll expense from Gusto when the checks are cashed by your employees.
If you are not handwriting or printing your checks through Gusto, below are the best options to avoid over reporting.
Example of Over-reported checks
You run a payroll that costs $10,000, where your employee is receiving a $7,000 check from you. In the $10,000 expense synced over from Gusto, you can see line items for $9,000 of gross wages (this includes a $7,000 check + $2,000 in employee taxes) and $1,000 of employer payroll taxes.
When you create a check for your employee in your accounting software, it will also create an expense for $7,000. As a result, when you look at your total payroll expenses you will now see that payroll for this pay period costs $17,000. When reconciling your books, however, only $10,000 will be taken from your checking account ($3,000 for employee + employer taxes and $7,000 from the cashed check).
The check created by your accounting software has led you to over report your payroll expenses, so when you look at your profit for the year it is lower than it should be. You will need to use one of the solutions described below to reconcile the over reported check payment.
Option 1: Reduce the expense account associated with Gross Wages, indicated by your mappings in Gusto, by the amount of the employees' check prior to creating the check in your Xero account. Reducing the Gross Wage expense by the check amount will prevent double counting.
Example: You sync over a total payroll expense of $10,000. Knowing that creating a check will over-report the expense by $7,000, you reduce the gross wage expense from $9,000 to $2,000.
Option 2: Create a liability line item to reduce the amount of the Bill by the amount of the check(s). The same liability account should then be used for the checks when the checks are written.
Example: You sync over a payroll expense of $10,000. Knowing that the check you create will be outstanding until cashed, you create a negative line item for the check amount for $7,000 in our Bill to a liability account. When you create the check, make sure you do not add it to an expense account. Instead associate it with the same liability account you just mapped the check payment to. The check will auto-reconcile when cashed.
How to edit a Gusto Xero Bill
To learn more about creating a liability check in Xero, click here.
If you're using Bill sync for your Xero integration, this is our recommended method for reconciling expenses if payments were all processed through direct deposit. You can use the Split function to reconcile the payroll invoice that Gusto sends to Xero with the 2 payroll bank transactions.
Step 1. Use the Split function to reconcile the 1st transaction
Step 2. Reconcile the 2nd transaction
Splitting Payments FAQ
Q: Will transactions automatically reconcile?
A: No. Your Bill must be approved before you can reconcile the debits in your bank account with the Bill line entries. Do this by matching your bank transactions to the Bill Gusto created using “Match” under Accounts > Bank Accounts.
When the Gusto payroll bank debits (and paychecks, if paying your team by check) appear in your bank account in Xero, from the Create tab, create a new receive money transaction and allocate it to your clearing account.
To make the reconciliation process even easier, you could set up a bank rule to create the transactions for you.
You should regularly check the transactions in your clearing account using the Account Transactions report.
The Gusto payroll bank debits (and paychecks, if paying your team by check) should completely offset the balance of your clearing account after each payroll is reconciled. If the balance isn’t zero, it could be due to:
Disconnect your company's Xero Accounting integration
Disconnect your company's Xero Payroll integration
In order to properly track the amount of the credit and apply the credit to the federal tax owed, Gusto will pass the amount of the eligible credit through to your Xero and Quickbooks integrations.
Important: This will require the set up of new mappings to accounts in your accounting software. We strongly encourage consulting your accountant in the mapping of these accounts.
Your payroll entries will include two new components:
There’s no action required on future payroll runs if the accounting integration is set to auto-sync entries. You can pull the remaining balance of the credit in your accounting software at any time as a line item on your balance sheet.