Single Touch Payroll (STP) is the way you report your payroll information including wages and salaries, pay as you go withholding (PAYGW) and super information to the ATO and has been around since July 2018. You can read more about the initial STP rollout here.
When the 2019–20 Budget was presented, the Government announced that STP would be expanded to include some additional information.
This expansion of STP, also known as STP Phase 2, is meant to reduce the reporting burden on employers who need to report information about their employees to not just one but multiple government agencies.
We will help break it down for you, so you understand how it’s going to affect your business.
When Does Phase 2 Start?
The mandatory start date for Phase 2 reporting is 1 January 2022.
However, to make this transition as smooth and easy for employers as possible, the Government has adopted a flexible approach based on your business readiness/individual circumstances.
They are doing this by working closely with the Digital Service Providers (DSP) who develop or deliver digital services that help business meet their tax and super obligations.
In this situation that is Accounting platforms such as Xero, MYOB and QuickBooks who need to update their STP-enabled software.
If a Digital Service Provider (DSP) needs more time to make the changes and updates required to support STP 2, they can apply for a deferral for their customers. If your DSP obtained a deferral, they would let you know.
If you are ready to start reporting before March 2022, you will be considered reporting on time, or if your solution is ready for reporting by the DSPs deferral date, you will not need to apply for more time
What Are the Key Changes?
Most of the additional information that will need to be reported is already captured in the current payroll system. The following is the key changes to the report.
Disaggregation of Gross Payment
The STP report will now breakdown and itemise all the payment types that go into making up the gross payment. This helps to identify payments you make to your employees with specific tax consequences
- Salaries and wages
- Labor hire
- Seasonal worker
- Working holiday maker
Employment and Taxation Conditions
The extra information you will include in your STP report will mean you no longer need to send the ATO the Tax File Number (TFN) Declarations – you will only need to keep them with your employee records.
Income Type and Country Codes
The reporting of income types is being introduced to identify payments made to employees with specific tax requirements and obligations. This is making it easier for them to complete their individual income tax return.
Sometimes it will be necessary to report a country code, for example, if you make a payment to an Australian resident working overseas, you’ll need to provide information about the host country.
From 1 January 2020, salary sacrifice contributions can no longer be used to reduce ordinary time earnings or count towards minimum superannuation obligations. They will need to be reported in the STP report.
Reporting Previous Business Management Software IDs and Payroll IDs
You will now be able to provide previous Business Management Software IDs and Payroll IDs in your STP reports where a change has occurred. This might happen when there has been a change of business structure or a change of software and there is not the ability to finalise the previous records.
If you want more information about these key changes you can visit the ATO website here.
What Isn’t Changing?
While there will be the need to include additional information in your STP report, there are still many things that will stay the same, such as:
- the way you lodge
- the due date
- the types of payments that are needed
- tax and super obligations
- end of year finalisation requirements
What are the Benefits to Employers and Employees?
STP Phase 2 will streamline reporting processes for employers. It will assist in reducing the amount of duplicate information employers provide to the Government. It also allows for payments that make up gross income to be clearly defined, making it easier for businesses to understand their employer obligations.
With the implementation of Phase 2, there is some reporting that will make it easier for employees at tax time. Different types of income will become more transparent, so it will be able to be prefilled in their individual income tax return. It will also tell employees if they’ve provided incorrect information that may lead to them getting a tax bill, for example, if they have failed to inform an employer that they have a Study and Training Support Loan that needs to be taken into account during the payroll process.
What Do You Need to Do Next?
While the Digital Service Providers update their payroll software, there are some things that can be done in preparation.
Take the time to consider how some of the information you already report through STP is changing. You can also find out what new information you’ll need to report and consider where you capture and store some of this information now if it’s not in your payroll system.
If you feel you need help with STP Phase 2, Sense in Numbers can help talk you through the process to make sure it goes smoothly with minimal disruption to your business and employees.