Xero does not have native payroll processing in Louisiana, or some twenty-five other states, so Xero users must choose a separate payroll service for that functionality. The two biggest players in the Xero add-on market are Gusto and ADP.
Launched in 2012, Gusto, formerly ZenPayroll, was created as a modern cloud-based payroll service, far from the payroll processing models of the past. Gusto allows owners to easily process payroll without the use of an advisor and at a very competitive price. This makes it an attractive option for entrepreneurs who are used to wearing many hats and are comfortable paying for a tool to handle the compliance.
ADP, founded in 1949 as a traditional outsourced payroll processor, is on the complete other end of the spectrum. They are ranked #248 on the Fortune 500 and process payroll for 1 in every 6 US workers, including huge companies.
ADP offers three core payroll processing solutions, but this comparison focuses on ADP’s small business product- ADP RUN.
This is not a comparison of the features within each of the systems, only of the integration with Xero. The scenarios below are for completely paperless processing, with each employee receiving direct deposit rather than a paper check.
When Xero and Gusto organizations are integrated, Gusto sends through a draft bill with the proper account coding. The draft bill will record separate lines for gross wages, payroll tax expense and benefits. If auto-sync is chosen in Software Integration Settings in Gusto, the draft bill will appear in Xero immediately following payroll processing. The draft bill must then be approved in Xero.
Once it is recorded, the user must apply payments according to the bank transactions involved, generally one draft for net pay and one draft for the tax payment. The amounts can be obtained by viewing the details of each payroll. The user needs to note the payment amount, add the settlement date, and choose the correct bank account that will be drafted. This involves back and forth in Xero until all payments are applied and the bill has been fully settled.
Once payments are applied, Xero should automatically match the payments to the incoming bank transactions by amount in the Bank Reconciliation screen. The user only need confirm the transaction matching by clicking an “OK” button.
The ADP RUN integration is similar to the Gusto integration in that the “connector” is a bill. The bill is generated by creating a General Ledger File. (NOTE: General ledger functionality must be activated by a ADP rep, and the user must send the organization’s chart of accounts to ADP for import.)
For each processed payrun, the user creates a Xero general ledger file within ADP RUN, which is done with just a few mouse clicks. ADP RUN sends to Xero a fully paid bill, thereby skipping the steps of approving the bill and applying payments. The ADP bill shows the same expense line items as Gusto, but also transfers the settlements (net pay and taxes) within the bill as negative amounts. The payroll bank settlements are not transferred to Xero as payments, which would have to be matched to the transactions on the feed, but are mapped directly to general ledger accounts within the bill. These settlements are generally mapped to liability accounts, like Payroll Suspense and Payroll Tax Liability.
To clear the liabilities, the bank transactions must be coded to the correct general ledger accounts on the bill, but this can be easily automated through the use of bank rules, which we love. Bank rules will allow these transactions to be cleared in cash coding, which is not an option for matching payments.
While it is convenient that Gusto can be set to auto-sync the payroll data in Xero, the steps necessary to send the bill from ADP RUN to Xero take less than a minute. The reconciliation within Xero for Gusto processed payroll takes several minutes, while for ADP RUN payroll, nothing needs to be handled in Xero other than confirming a bank rule.
ADP RUN’s integration is more automated and quicker, so, as advisors to small businesses, we have to give the nod to ADP RUN.
Amanda Aguillard decided to become a CPA when she was 16, and never looked back. She started Aguillard Accounting LLC in 2012, committed to running a cloud-based practice from anywhere in the world. Aguillard Accounting is a Xero Gold Partner and Cloud Integrator, Vend Certified Advisor, Clio Certified Consultant and Deputy Certified Advisor, amongst others, and Amanda regularly teaches the Xero Partner Certification course. While she holds a Masters Degree in Taxation from the University of Denver, she would much rather craft and implement ecosystems for retailers, law firms and creatives. She spends any spare time cooking for her two kids and reading historical fiction. She is slightly obsessed with Penzey’s Spices and Chris Thile.