What Employers Need to Know About Single Touch Payroll Phase 2
If you’re an employer, you are probably already aware of Single Touch Payroll (STP) and the changes it’s been through since its inception in 2018. But you might need to catch up with Phase 2 and what that means for your bookkeeping and payroll process.
If you’re new to STP and plan on employing people, you’ll need to know your ATO reporting obligations as an employer.
Single Touch Payroll is a government initiative meant to reduce employers’ compliance requirements and make payroll processing quicker and easier. However, we now know that’s not true!
Payroll processing and STP reporting have become compliance burdens requiring much time and knowledge. Australian payroll law is very complex, and STP reporting has to be detailed to allow for all the possible payroll categories that must be reported. Although the reporting of STP is relatively simple, payroll remains complex, and the STP data is reliant upon the payroll detail being accurate before STP reports are sent to the ATO.
Before STP started, employers only needed to report basic payroll data on the BAS and once a year at the end of the financial year with payment summaries. Now, with STP, each time you process a pay run, you must file a report with the ATO that details how much the employee was paid and the types of payments, the PAYG tax withheld, and the superannuation amount. This means the ATO has current payroll information for every employer.
It sounds simple – and it is when your payroll is simple – but reporting has become very complex for many employers, especially with the new Phase 2 requirements.
Would you like On The Money payroll services to help you implement Xero and prepare for STP Phase 2? Get in contact to learn more.
Why STP Phase 2?
Since the ATO initially brought in STP, the scope has expanded, and Phase 2 allows payroll data to be reported to multiple government agencies, not only the ATO.
Data sharing means that the agencies are not reliant on information from employers or employees that may be incorrect or outdated. Instead, they get the data as soon as it is processed by the employer, making it easier for Services Australia to work out payments such as pensions or child support for employees. In future, the data will be shared with other agencies such as State Revenue Offices.
STP Phase 2 reporting started on 1 January 2022 for employers using software ready for STP Phase 2.
What’s New in STP Phase 2?
- Extra fields to report more detailed payroll information, such as payroll categories and the many different types of allowances. Wages and salaries are reported separately to include categories such as bonuses, overtime, paid leave and director fees.
- Tax file numbers are reported directly to the ATO.
- Employee termination information, including the reason for termination.
- Superannuation is reported according to the type – superannuation guarantee, salary sacrifice, employer additional or employee additional.
- Data matching across government agencies and ATO departments have been improved for both businesses and individuals.
- Lump sum payments include more detail about the type and related financial year.
- Child support payments are now reported directly to the child support registrar.
- Employment termination payments (ETPs) include more detail.
- Payments that require specific tax treatment, such as for overseas workers, are included.
- The payroll software must map all the different pay categories to relevant ATO codes. For the most part, the software will take care of the mapping; however, if you use customised pay items to comply with specific award conditions, you will need to check that the categories are mapped to the correct ATO codes.
What Hasn’t Changed?
- STP can only be submitted digitally and should be reported to the ATO on or before the day employees are paid. STP cannot be reported through the ATO online services for businesses or agents. Therefore, you need to use STP-enabled payroll software or a Standard Business Reporting provider to submit the STP reports to the ATO. (Note we wait until we can see that employees have been paid from the bank before filing STP).
- An end of financial year finalisation process is still required. The more accurate the data is throughout the year, the easier this process is; however, if there are any inaccuracies in the payroll accounts, this process can be time-consuming and complex. This replaces the annual payment summary that used to be given to employees. Now, they get their income statement directly in their myGov account online, and the data is automatically prefilled to the ATO tax return form.
- You still need to give employees a pay slip, either paper or digital.
- You still include gross wages and PAYGW on the BAS.
Xero and STP Phase 2
STP reporting had to be redesigned entirely with Phase 2, as it is a change of technology, not simply expanding the fields in the existing STP system in Xero.
Xero has a deferral in place until 31 December 2022, so if you’re already using Xero, you don’t need to worry about doing anything differently just yet.
Xero is bringing in the Phase 2 functionality in three stages and has already released some changes you may have noticed. For example, employee records now include more fields to prepare for STP Phase 2, more categories are available in pay items, and termination information is also included in the employee record.
The final stage of STP Phase 2 readiness will roll out later in 2022, bringing in more pay item categories, more options within the employee records and upgrading the ATO mapping for existing pay items.
Need More Information?
At On The Money Melbourne bookkeepers, we work closely with business owners and our expert advisors Employment Hero and The Association of Payroll Specialists to ensure your payroll is accurate and compliant before we submit Single Touch Payroll reports on your behalf. Our payroll services team can get your Xero bookkeeping and payroll set up correctly so that STP reporting is seamless. Talk to us if you’d like to understand more about STP Phase 2 and what it means for your business. And if you want to move your payroll to Xero and outsource to experts, check out our info here.