Xero Payroll – How to Adjust Annual, Sick and Other Leave Balances

When an employee goes on leave, they should enter a leave request in Xero for the number of working hours they will be away. Once you approve the request and run the payroll for that period, your employee’s accrued leave balance will reduce by the number of approved leave hours.

If you do not follow those steps, your employee’s leave balance will not reduce. When this happens, you will need to manually adjust the employee’s leave balance to reduce it to the number of hours that should remain accrued.

There are two ways you can manually adjust an accrued leave balance for an employee in Xero:

  1. Adjust the Opening Balance: enter a negative opening balance to the employee’s leave balance or reduce the positive balance
  2. Post an Unscheduled Pay Run: that contains the amount of leave hours taken by the employee as a neagtive number

1. How to Adjust an Opening Leave Balance

This method manually adjusts the employee’s leave balance by reducing the number of hours in their opening leave balance, or entering a negative number if there is no opening balance.

This is the quickest and easiest of the two methods, however it has one drawback: it does not leave an audit trail in your pay runs. Because of this, you should keep a record somewhere that explains why you made the adjustment and how you calculated the number of negative leave hours you posted.

To make the adjustment, go to Payroll → Employees in the main menu.

Click on the name of the employee you wish to adjust.

Click on the Leave tab to see the accrued balances of annual leave and personal/carer’s leave owed to the employee.

In the Leave Balances section, click on the number of hours accrued for the leave type you want to adjust.

You should now see an Edit Leave Type box. The Opening Balance section is where where you enter the number of hours to subtract from your employee’s sick leave. For example, you could reduce the employee’s accrued leave balance by three hours by entering -3 in the Opening Balance section. Be sure to include the minus sign in front of the number.

Once you have entered the negative number, hit the Save button to be taken back to the Leave tab. You should now see that the employee’s leave accrual has been reduced by three hours.

As mentioned, while this method is quick and easy, it is risky as it does not leave an audit trail.

2. How to Adjust a Leave Balance with an Unscheduled Pay Run

The most thorough method of manually adjusting leave balances for employees in Xero is to post an unscheduled pay run. The main benefit of doing it this way is that it leaves an audit trail in your pay run history.

To make the adjustment, go to Payroll → Employees in the main menu.

Click on the name of the employee you wish to adjust.

Click on the Leave tab to see the accrued balances of annual leave and sick/personal/carer’s leave owed to the employee.

In the Leave Balances section, take note of the balance of accrued leave you want to adjust. After we have posted the unscheduled pay run we will go back and check this balance to see if it has been adjusted.

In the main menu click on Payroll → Pay Employees.

Click on + Add Pay Run.

In the drop down box, select Unscheduled Pay Run.

Next, choose thepayroll calendar that your employee belongs to. Then, choose a Pay Period in the Select unscheduled pay period drop down. The option you choose should cover the date you are following this tutorial. Then hit the Next button.

Here you can select which employees to include in the pay run. Click on the grey circular button at the right hand end of the row.

A green tick should appear in place of the grey button. Click anywhere on the row to be taken to the employee’s pay template.

Now you must create a blank pay slip for the employee by removing all of the items that have automatically populated from their payroll template. 

Their net pay should be 0.00 and they should not be accruing any leave. You are now free to add the sick leave adjustment and save the pay slip. Click on + Add Leave Line towards the bottom of the template.

An Add a Leave Accrual Line box will appear. Ensure that Calculate leave accrual is set to No and press OK.

Now we can enter the number of sick leave hours we want to subtract from their balance. For example, type -7.6 in the Hours field of the Annual Leave line and press enter or tab.

Once you are finished, hit Save and then Close at the bottom of the screen.

After you are taken back to the pay run screen, hit Post Pay Run. A box will appear asking if you are sure you want to post the pay run. Hit Yes and the pay run will be posted.

Finally, you can check to see that your adjustment has been posted correctly by going back to the employee’s leave balances and making sure it has reduced by the -7.6 hours you posted in the pay run.

Disclaimer: Our articles and videos are here to inform you and the information provided does not constitute financial, taxation, legal, business or other professional advice and should not be relied upon as such. See our full disclaimer here.

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