Best Accounting Software for Outsourced Payroll in Australia

Aug 18

6 min read

The best accounting software for outsourced payroll in Australia isn't chosen for its native payroll features, it's chosen for how well it lets a dedicated payroll provider run payroll separately and post the results back in. Xero is the standout here, not because its payroll module is the most feature-rich, but because it handles payroll journal integration cleanly, which is what actually matters once you've split payroll processing out from your accounting software.

This article covers why that separation works, what to look for in software built for outsourced payroll, and how the model fits together in practice.

Key Takeaways

Integration Matters Most: The best accounting software for outsourced payroll is selected based on its ability to accept clean journal postings from external systems, rather than its native, built-in payroll capabilities.
Separation of Software and Service: Choosing a payroll software platform does not dictate how payroll is processed. Processing can be handed entirely to a specialized provider operating dedicated payroll tools, leaving your main accounting system focused purely on general ledger accuracy.
Essential Software Compliance: Any software paired with Australian payroll must support STP Phase 2 reporting, Fair Work-compliant payslips, automatic superannuation calculations, and accurate award rate interpretations.
Offshore Team Compatibility: Cloud platforms (like Employment Hero, KeyPay, Xero, and MYOB) allow offshore accountants to process payroll or manage journal reconciliations seamlessly via real-time, permission-based access and standard security controls.

What's the Difference Between Payroll Software and Outsourced Payroll Processing?

Payroll software is the tool that calculates pay, tax, and superannuation. Outsourced payroll processing is the service that uses a tool - sometimes the same software, sometimes a separate one - to actually run payroll on your behalf each cycle.

Factor	Payroll Software	Outsourced Payroll Processing
What it is	A tool that calculates pay, tax, and super	A service that uses a tool to run payroll for you
Who operates it	Your firm or in-house team	A dedicated payroll provider
Where it fits	Native module or standalone platform	Sits on top of, or alongside, payroll software
Output	Payroll calculations and reports	Completed payroll runs, often posted as journals into your accounting software
Ownership of process	You manage the process yourself	Provider manages the process on your behalf
Best suited to	Firms wanting full control over payroll runs	Firms wanting to hand off payroll complexity while keeping accounting in-house

That distinction matters more than it seems at first glance. Many firms assume choosing payroll software means choosing how payroll gets processed, but the two decisions can be separated entirely.

A payroll provider can run calculations in dedicated payroll software and simply post the resulting journals into your accounting platform, which is a different model to running payroll natively inside your accounting software's built-in payroll module.

What Features Should Payroll Software Have for Outsourced Processing?

STP Phase 2 compliance - reporting must align with the ATO's Single Touch Payroll requirements, since this is now mandatory for Australian employers.
Award interpretation support - the software needs to correctly apply pay rates and conditions under relevant awards or enterprise agreements.
Superannuation guarantee calculation - accurate, automatic calculation of super contributions in line with current requirements.
Journal export or posting capability - the ability to summarise payroll runs into clean journal entries that post into your accounting software.
Payslip compliance - payslips need to meet the standards set out under the Fair Work Act.
Multi-client capability - for accounting firms managing payroll across several clients, the software needs to handle multiple entities cleanly.

Is Xero or MYOB Better for Outsourced Payroll?

Both handle native payroll adequately, but Xero tends to be the more common choice for outsourced payroll specifically because of how easily it accepts journal postings from external payroll providers.

Factor	Xero	MYOB
Native payroll	Yes, built-in	Yes, built-in
Journal posting from external payroll providers	Well-suited, commonly used for the separated model	Capable, but less commonly used this way in practice
Fit for separated payroll model (dedicated provider + accounting software)	Strong fit	Workable, but less common
Best suited to	Firms outsourcing payroll to a dedicated provider	Firms running payroll natively within MYOB
Key consideration	Integrates cleanly with external payroll workflows	Native payroll module is capable on its own

Which Payroll Platforms Are Commonly Used Alongside Xero?

Platform	Common Role
Xero Payroll	Native payroll within Xero - suited to firms running payroll fully in-house
Employment Hero	Standalone payroll and HR platform, often used by outsourced payroll providers
KeyPay	Standalone payroll platform built for award interpretation and multi-client processing
MYOB AccountRight/Essentials	Accounting platform with native payroll, similar model to Xero's built-in option
QuickBooks Payroll	Native payroll add-on within QuickBooks Online

Can Offshore Accountants Process Payroll Using Xero or MYOB?

Yes, offshore accountants can process payroll or manage payroll journal postings using Xero or MYOB, provided they're set up as proper users with defined permissions, the same as any remote team member.

Offshore support can sit on either side of the process - running payroll calculations directly, or managing the journal entries and reconciliations once payroll's been processed elsewhere.

What matters is that whoever is handling payroll, offshore or local, understands STP reporting obligations and award interpretation requirements.

Getting either wrong creates compliance exposure with the ATO or under the Fair Work Act, so experience with Australian payroll rules should be a non-negotiable check before handing payroll work to any provider, offshore or otherwise.

Why Xero Works Well for Outsourced Payroll

Xero works particularly well for outsourced payroll because it's built to accept clean journal postings from an external payroll provider, without forcing everything through its own payroll module.

That means your payroll provider can run calculations, tax, and superannuation in dedicated payroll software, then post the summarised result into Xero as a journal entry.

This keeps your general ledger accurate and up to date, while the payroll-specific complexity - award interpretation, leave accruals, STP reporting - stays with the provider actually equipped to manage it.

For firms already running their accounting on Xero, this approach avoids duplicating effort or forcing a switch to a different accounting platform just to accommodate payroll.

How does cloud payroll software work with an offshore payroll team?

Access is based on permissions, not location - an offshore accountant logs into platforms like Employment Hero or KeyPay the same way an in-house team member would.
Work happens in real time - the offshore team operates in the live payroll file, not a copy or export of it.
Scope depends on your firm's setup - they can run the full payroll cycle (pay runs, award rates, super, STP lodgement) or just handle journal reconciliation and posting into Xero or MYOB.
Security works the same way regardless of location - proper permissions, two-factor authentication, and activity logging keep the setup controlled.
AEST overlap helps catch issues early - questions on pay runs or award interpretation can be flagged during your business day, before an STP deadline rather than after.

How BOS Resources Supports Xero-Based Payroll Integration

BOS Resources supports Xero integration for firms taking the separated approach to outsourced payroll - accounting handled in Xero, payroll run through a dedicated provider, with the resulting journals posted cleanly into your file.

Offshore accountants work directly inside your Xero account, managing the reconciliation and posting side of payroll without duplicating work already done by your payroll provider.

That setup means your firm gets the benefit of specialised payroll processing without losing visibility over how it lands in your accounting records.

Get in touch with BOS Resources to talk through how a Xero-based payroll integration would work for your firm.

Conclusion

Choosing the best accounting software for outsourced payroll comes down to integration, not payroll features. Separating payroll processing from your accounting software, and choosing accounting software that accepts clean journal postings from a dedicated provider, tends to produce better results than relying on native payroll modules alone.

Xero's strength in this model is exactly why it's become a common choice for firms taking the outsourced route.

If you're setting up outsourced payroll and want an offshore team that works directly inside your Xero file, BOS Resources can help. Get in touch with our team to talk through your firm's payroll setup.

Frequently Asked Questions

Which payroll software is compliant with Single Touch Payroll (STP)?

Most established Australian payroll platforms, including Xero Payroll, MYOB, QuickBooks Payroll, Employment Hero, and KeyPay, support STP Phase 2 reporting. Always confirm current compliance directly with the provider, since requirements are updated periodically.

Can offshore accountants process payroll using Xero or MYOB?

Yes, provided they're set up as proper users with defined permissions and have a solid understanding of Australian payroll requirements, including STP reporting and award interpretation.

Do I need separate software for accounting and payroll?

Not necessarily, but many firms find it works better to separate the two - using dedicated payroll software or a provider for the payroll run, and accounting software like Xero purely for posting the resulting journals and managing the ledger. This avoids asking one platform to do both jobs well.