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Agree - This is essential to have for EOPY preparation.

Agreed - would love some action on this. Really essential now

this is essential to have fixed in prep for EOPY and STP Finalisation. In particular with ATO data matching now.

Further on this topic - the reimbursement work around is just not correct....and means then that the employer has to explain to the employee that on their payslip where it says reimbursement it is not really a reimbursement it is their allowance - but the Xero software doesnt work if its used as an allowance when the business reports the end of year earnings.....how embarrassing for Xero and the business and confusing for the employee.....when many dont understand their payslip in the first instance!

This is something that is essential for STP finalisation for 2025. I can see that it has been an ongoing issue for a number of years and really does need addressing immediately with a fix in place for end of 2025.
As a bookkeeping practice, we can work around this, with more time and effort, however small business who do their own bookkeeping rely on the software aka Xero providing the solution without them having to be a technician. Just because this may not have as many votes (likely because many people are not aware of it being a major technical glitch at the end of the year) - when it comes to compliance - common sense needs to apply in relation to when something is an urgent fix so that Xero customers CAN rely on the software doing what it is meant to do. If the ATO pick this up and start auditing business', a glitch in the Xero software is not likely to be something that the ATO will accept as a reason for the error.

Agree - This is essential to have fixed in prep for EOPY and STP Finalisation. In particular with ATO data matching now.

Hi all, I've just come across this discussion having discovered this issue myself in my clients file. Might I assume then XERO haven't fixed this, or has anybody come across a fix / a fix applied to their XERO file?

It is important, Xero's new instructions indicate to just treat as a reimbursement.
https://central.xero.com/s/article/Add-a-custom-pay-item

Below is from the link, incase the link breaks in the future.

Reimbursements

Out-of-pocket or other expenses you reimburse employees for, such as tool allowances, mileage expenses, travel allowances or non-reportable allowances.

Some non-reportable amounts are:

Living away from home allowance (LAFHA) fringe benefit
Travel allowance equal to or below the ATO’s reasonable amount
Overtime meal allowance below the ATO’s reasonable amount
Post tax deductions, except for those you need to separately identify
To determine whether an amount is non-reportable, use the guide to paying allowances (ATO website).

Yes!!!

Hopefully this will be fixed soon, as the Xero Created BAS doesnt match the ATO ... Do you we adjust the BAS on the ATO side and be out of reconciliation with the STP ? or adjust the Xero BAS to match the STP ? In the meantime i have turned on all the pay items to be W1 .. But this will just push the issue down the track to my employees having their income overstated.

Agreed. It makes no sense whatsoever to have a box that you can tick to say non-reportable W1 (in the earnings category of the Payroll Settings) if it then still gets reported (incorrectly) to the ATO. Please Xero fix this ASAP!!
LOADS of charitable organisations including churches have non-reportable earnings as a portion of their wage (this is not a reimbursement - which is currently the only way these earnings can be recorded). Putting these wages (earnings) in as a reimbursement throws out Superannuation and Leave Entitlement for these employees. This is crazy!!!

Completely agree - this process just doesnt seem to make sense from the employers or the employees point of view. You also cant put units or rates against reimbursements meaning manual calculations, unclear reporting and room for error.

Agreed. I don't know if I'm missing something, but we've got a bunch of travel allowances that satisfy the ATO rules to be tax exempt. According to ATO guidance at https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid/allowances these should not be shown in STP Finalisation. So I'm struggling with a way to try to delete them, since Xero automatically included them.

If it's exempt from PAYG and not reportable as W1, then why is Xero pushing it into the reportable Allowances part of STP finalisation?

I agree. Creating a non-reportable allowance through a reimbursement item is just not correct. And of course, it shows up in the reimbursements section of the payslip. No, just no.

STP2 Allowances. Not reportable at W1 should push that information through with STP, but it doesn't. Using reimbursements as a work around is not good enough - better syncing is needed.

It would good for xero to have a non-reportable Allowance Option. Using reimbursements is definitely against the grain of what the ATO say a reimbursement is. Reimbursements require receipts to substantiate the payment.

I strongly agree, you need an easily pick non-reportable in the payroll categories. Processing a non-reportable allowance as a reimbursement seems totally wrong.

Pay an Employee for a pay item that won't appear on their income statement and isn't included for STP. eg The Overnight Travel Allowance equal to or below the ATO reasonable amount. Can't it be set up as an pay item with a box to check - Do not include in Income Statement. Having to process this as a reimbursement means having to calculate the amount to be paid for each pay run.