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How to Set Up the Annual Leave in Xero

Updated on:
June 5, 2026
By:
Madhav Bhandari
Use this interactive demo to learn how to configure annual leave as a paid leave type in Xero Payroll.

Quick summary

Setting up annual leave in Xero Payroll requires navigating to Payroll Settings and adding a paid leave type under Pay Items. This process ensures employees' annual leave entitlements are correctly tracked and applied in your payroll runs.


Steps

  1. On Xero's main dashboard, go to the top menu bar and click Payroll.
  2. Select Payroll Settings from the list of options.
  3. Tap the Pay Items tab to proceed.
  4. Choose Leave from the available options.
  5. Tap the Add button in the top-right corner.
  6. Click Paid Leave to select the leave category.
  7. Fill in all required annual leave details in their respective input fields.
  8. Review your input and click Add to save the leave type.
  9. Confirm the leave type has been successfully added to your Xero account.

📌 Why this matters

Correctly configuring annual leave in Xero Payroll ensures that employee leave entitlements are accurately calculated, tracked, and reflected in every pay run. Xero's payroll settings allow businesses to define paid leave types that automatically accrue and apply to employee pay, reducing manual errors and compliance risk. For businesses managing staff leave obligations under local employment law, setting up a dedicated annual leave pay item is a critical step toward compliant, automated payroll management.
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