A great start with Xero
For tens of thousands of Australian small businesses, Xero is the gold standard.
It is intuitive, accessible, and arguably the software that dragged the accounting industry into the cloud era.
When you have ten employees on a standard salary, Xero Payroll is a dream. It handles SuperStream compliance, Single Touch Payroll (STP) compliance, all integrated in with Xero accounting to automatically sync your payroll journal.
But not all small businesses are made equal. And just because your business is small, doesn’t mean it doesn’t have a complex payroll scenario. We have seen businesses with 25 employees with an Enterprise Agreement. And 1000 person businesses simply paying salaries. One is not more complicated than the other, and some would argue the 25 person business employing under an Enterprise Agreement is superior in complexity.
As you scale from a startup to a robust mid-sized enterprise—passing the 50, 80, or 100-headcount mark—the very simplicity that made Xero attractive begins to act as a handbrake.
At Alltech Payroll, we often meet clients who are grappling with this transition. They haven’t failed; they have simply succeeded enough to require a different class of infrastructure.
The “Do It Yourself” approach that worked during the growth phase effectively becomes a liability during the scaling phase.
If you are a Finance Head or Payroll Manager currently sensing friction in your weekly or monthly pay runs, you are likely approaching the “tipping point.”
Here are the five definitive signs that your operational complexity has surpassed the capabilities of Xero Payroll.
1. The Rise of "Shadow Payroll" Spreadsheets
One day I asked a boss of mine (whilst selling payroll software) “who is our greatest competitor?” to which he said quick swiftly: “Excel”.
The single clearest indicator that you have outgrown your software is the existence of Excel spreadsheets alongside your payroll software.
Xero is designed to handle standard pay runs very nicely.
However, Australian industrial relations are notoriously complex. When you introduce multiple Modern Awards, intricate Enterprise Agreements (EAs), or specific allowances that vary based on the time of day or shift patterns, Xero’s capacity for automating these just isn’t there.
If your payroll officer is manually calculating higher duties, split shifts, or overtime rates in a spreadsheet and then keying those final figures into Xero, you are no longer using payroll automation. You are essentially using Xero as a calculator and a payslip generator.
This creates a “Shadow Payroll”—a manual process that exists outside the safety net of your software.
This is where human error thrives.
One formula error in a spreadsheet can lead to systemic underpayments that go unnoticed for months. If the software isn’t doing the heavy lifting of interpreting the Award conditions, it isn’t serving the needs of a complex workforce.
2. Rostering and Attendance are Disconnected from Pay
In industries like Aged Care, Hospitality, Manufacturing, and Retail, the roster is the heartbeat of the operation.
Xero provides basic timesheet functionality, but it is rarely sufficient for a workforce of 50+ staff with fluctuating shifts. As a result, many businesses use third-party rostering apps (like Deputy) or, worse, excel or manual paper timesheets.
And even then when you’re bringing “award-interpreted” timesheets from a third party solution into Xero payroll, it’s far from perfect.
The tipping point occurs when the integration between your time-capture method and your payroll system becomes a friction point. Are you manually importing CSV files? Are you cross-referencing paper timesheets against rostered hours to check for variances?
3. Reporting Lacks Granularity for Financial Decision Making
As a business grows, the role of the CFO or Head of Finance shifts from cash flow survival to strategic analysis. You need to know more than just “Total Wages.”
You need to understand labour costs split by department, location, or cost centre. You need granular visibility on leave liability to understand how it impacts your balance sheet. You need to track the true cost of overtime against revenue in specific operational units.
Finance teams find themselves exporting raw data from Xero just to manipulate it in Excel to get the reports they actually need for the board pack, it is a signal that the general ledger-focused software is no longer sufficient for your payroll-specific needs.
4. The "Key Person" Risk has Become Unacceptable
When you run payroll in-house on a platform like Xero, the knowledge often sits with one or two individuals. They know the quirks of the system; they know that “John in Warehousing” needs a specific manual adjustment every fortnight; they know how to fix the superannuation accrual when it glitches.
What happens when that person takes annual leave, gets sick, or resigns?
For a 15-person company, the Director can step in and figure it out. For a 100-person company with complex Award interpretations, that is impossible. The “Key Person Risk” becomes a massive vulnerability.
Outgrowing Xero often coincides with outgrowing the “DIY” mentality entirely. This is usually the stage where businesses realize that payroll is not just an admin task—it is a critical business function that requires redundancy and continuity. Moving to a managed payroll model removes this risk, ensuring that your payroll runs compliantly regardless of who is in the office that day.
5. You Are Worried About Compliance (And You Should Be)
Australia has one of the most complex wage systems in the world. The Fair Work Ombudsman is increasingly active, and “wage theft” is a term that no Director wants associated with their brand.
Xero does a good job of keeping you compliant with the ATO (tax tables and STP), but if you are paying staff under an Award and you are relying on manual inputs into Xero to ensure those Award conditions are met, you are exposed.
The tipping point here is emotional: it is the nagging fear that if an audit happened tomorrow, you wouldn’t be able to prove that every overtime hour was paid at the correct penalty rate.
And there is one more…
6. The Overall Maximum Employee Limit
If you’re a growing business with more than 100 employees, there is a risk you’ll need to move off Xero once you start pushing toward the 150 employee mark. Soon enough Xero will ask you to leave.
Yes you read that correctly, Xero will insist you need to find a third-party payroll solution.
The system is not architecturally designed for the data volume associated with larger payrolls. Xero is fundamentally built and optimised for small to medium-sized enterprises (SMEs). The 200-employee limit is a planned cap to ensure their platform remains stable and provides a good experience for it’s customers.
Even if Xero payroll is a good solution for you, if you have 100 employees, the time is now to consider your options.
The Path Forward: Systemisation and Expertise
Recognising these signs is the first step. The second is understanding that the solution isn’t just “bigger software”—it’s better process.
At Alltech Payroll, we specialise in guiding businesses through this exact transition. We frequently migrate clients from standalone Xero setups to comprehensive Employment Hero environments. This shift allows for genuine award interpretation, automated rostering-to-payroll workflows, and deeper reporting.
However, software alone is rarely the silver bullet.
The true solution for the mid-market business is combining the right platform with the right partner. By moving from a DIY Xero model to a Managed Payroll service, you don’t just upgrade your technology; you upgrade your peace of mind. You gain access to a team of experts who monitor the legislative landscape, manage the complex calculations, and ensure that your growing business remains compliant, efficient, and scalable.
If you recognise your business in the points above, you haven’t failed. You’ve just outgrown one phase in business. Now, it’s time to build the infrastructure for the next stage of your growth.