Payroll Set up in Xero for Religious Practitioners

Religious Practitioners (Pastors/Ministers) can receive special tax exemptions provided the rules around the special Fringe Benefits Tax exemptions are complied with. 

Please see this ATO for more details: https://www.ato.gov.au/Non-profit/Your-workers/Your-obligations-to-workers-and-independent-contractors/Fringe-benefits-tax/FBT-concessions/FBT-concessions-for-religious-institutions/

Once you have all the correct documentation and arrangements in place, the correct payroll set up is essential! 

If this is not set up properly in your payroll system you could: 

• calculate the incorrect tax, 
• calculate and report the incorrect amounts on your BAS, and/or 
• create incorrect Annual Payment Summaries 

NOT GOOD!! 

I have done all these things and learnt from painful experience. 

So please follow the exact set up below to avoid making these painful mistakes yourself. 

 The aim 

 Please Note:
 1.  these steps assume that you already:

• know how to set up pay items and process payruns in Xero. (Please see this link to the Xero Help if you do not know:    https://central.xero.com/s/topic/0TO1N0000017kmIWAQ/payroll-employees#business
• have an understanding of how ministers’ payroll operates including the special FBT exemptions for Religious Practitioners. Please see this link to the ATO webpage on this: https://www.ato.gov.au/Non-profit/Your-workers/Your-obligations-to-workers-and-independent-contractors/Fringe-benefits-tax/FBT-concessions/FBT-concessions-for-religious-institutions/

2. We have tried many different ways to set up pay items and find the following works best.

          1.  Set up the correct accounts in the Chart of Accounts.

The following Accounts are required: (Rename as desired) 

          Expense Accounts: 

• Taxable Ministry Salaries/Stipend 
• Ministers Allowances/Benefits 

          Liability Accounts 

• Ministers Allowances Owing – a separate liability account is required for each minister/pastor
  
  2. Set up thePay Items for Ministers/Pastors – as follows 
  

Earnings Pay Items x 2 

 

 Deductions – one per minister 

 

 

Employee Pay Item 

 

 

 

Please contact us if you would like to discuss this article further or you need any help with your church’s financial management processes at [email protected] or 1300 138 627 

© Benkorp Management Services Pty Ltd 2018