SINGLE TOUCH PAYROLL PHASE 2 – WHAT YOU NEED TO KNOW

The deadline for Single Touch Payroll, Phase 1 (STP 1) concluded on 1st July 2019. In the ongoing phase, employers can send their employees’ salary and wage, tax withheld and super information to ATO at each pay run. STP 1 is an ATO reporting mechanism with a little bit of Superannuation mechanism involved.

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What is STP 2 and why?

Current deadline for Single Touch Payroll, Phase 2 (STP 2) is 1 January 2022 (there may be transition schemes and deferral programs to extend it further). STP 2 will expand the detailing mechanism by initially feeding the STP information into the ATO system and then further to that into Services Australia.

The purpose is to reduce the burden on employers who need to report information about their employees to multiple government agencies. Why? Because Services Australia wants that breakdown because it changes the way they pay welfare payments to its customers. At the same time, it will also reduce the administrative burden of Services Australia and other related government agencies. So STP 2 will go into more granular details for reporting in accordance with the Social Security laws.

What is not changing?

· the way you submit your STP report.

· STP reports are still due on or before pay day unless you are eligible for a reporting concession.

· the types of payments that are in-scope for STP reporting.

· taxation and superannuation obligations.

· end of year finalisation requirements.

What is changing?

Disaggregation of gross income

· All components which make up the gross income of an employee will now need to be separately categorised and reported. These are:

- bonuses and commissions

- directors’ fees

- paid leave

- salary sacrifice

- overtime

- allowances

- gross (other)

In STP 1, some allowances (6 items) are separately reported while others are reported as part of gross income. In STP 2, all allowances will now need to be reported separately.

Income type and Country codes

· Income type: to identify payments made to employees with specific tax consequences and to identify concessional reporting arrangements such as Closely Held payees.

· Country codes: for reporting home country of employees who are inbound consignees or working holiday makers, and for reporting the host country of an Australian resident working overseas.

Employment Conditions

· TFN declarations: no longer required to be submitted.

· Employment type: such as FT/PPT/Casual will now need to be reported.

· Tax Treatment: based on the information supplied by the employee and of what you know about the employee. Identifies the incorrect information supplied to you by the employee and helps reduce their tax bill at year end. E.g., employee working 2 jobs opts for tax-free threshold from both the employers.

· Employee separation: report cessation type (voluntary, redundancy, illness etc.) when employees leave. This will reduce the need for you to provide them with separation certificates.

Other changes

· Salary sacrifice: needs to be reported in STP 2 to make it easier for employees to understand their superannuation entitlements.

· Child support deduction: you will have the option to report child support payments your employees make which will reduce the need for separate remittance advice reporting to the Child support registrar.

· Lump sum E: to be reported and will reduce the need to supply Lump sum E letters in most cases.

· New Lump sum W: which was formerly reported under gross income (return to work payment) and taxed concessionally will now be reported as a separate item.

· BMS IDs and Payroll IDs: option to report previous Business Management Software IDs where there has been a change of software or change of business structure and you are unable to zero out the previous records. This prevents duplicate income statements for the employees in ATO portal.

Will it require more work?

The short answer is, yes. This era of digitisation has helped businesses improve their workflows and processes and STP 2 is riding on the back of that digitisation wave. As an accountant, we want our clients to put in place a robust process once and then meet all their requirements off of that process in the future. If you map all the categories correctly and put in all the details correctly ONCE, then all you would need to do in the future is to push a button and ATO gets all the information they want and so does Services Australia. In contrast, through STP 1, ATO got a bit of what they wanted and then Services Australia would come back to you in addition for what they wanted. And that meant you did the work twice – you want to do it only ONCE.

There is a bit of concern regarding STP 2 for small business as their payroll has traditionally been fairly simple. There will be a bit of training involved for them so that all their payroll items are mapped correctly. This means each employees’ payroll setting will individually need to be revisited to make sure each payroll category they are getting paid for has been mapped to the correct STP 2 field. ATO will support businesses in the transition to STP 2, but any employer who may find STP 2 overwhelming would benefit from reaching out to a qualified bookkeeper or accountant.

Should I be doing something about it now?

No. Currently, as an employer, you do not have to do anything because the ATO is still working with software providers to help them update their software for the coming changes. But there is some prep work that users and advisors of STP can do. ATO has released a fact sheet that you can read here: Expanding STP-Factsheet. ATO will release another Employer Onboarding guide within the next 6 months to help employers prepare for STP 2. If you want more information regarding STP 2, refer to the ATO website or get in touch with a qualified professional.