Applied Education courses now include the latest on STP Phase 2. Read about it below
Single Touch Payroll (STP) is a government initiative that requires businesses to digitally report employee payroll information to the ATO each time they run a payroll, using STP-enabled software. Applied Education has now added this information into our Payroll Administration courseware for 2021-22 and the upcoming 2022-23 versions
Updated Single Touch Payroll (STP) Phase 2
What is STP?
Single Touch Payroll (STP) is a government initiative that requires businesses to digitally report employee payroll information to the ATO each time they run a payroll, using STP-enabled software.
STP works by employers reporting the salaries and wages, PAYG withholding, and superannuation paid to their employees.
Super funds also report to the ATO on when employers make superannuation payments to their employees' chosen or default fund.
ATO systems reconcile the STP information, which is an important step toward making sure employees are paid their correct entitlements.
Employees with a myGov account linked to ATO online services will be able to see their year-to-date tax and super information in their Income statement, which is updated each pay day via STP reporting.
At the end of the financial year employers need to finalise their STP data by making a declaration that they have completed STP reporting for the financial year. Once finalised, employee Income statements in ATO online services will be marked as 'Tax ready'. They, or their registered agent, will use the Income statement to lodge their tax return.
- STP reporting does not remove the requirement to lodge an activity statement, if required.
- STP reporting removed the need provide the ATO with a payment summary annual report.
What is STP Phase 2?
In the 2019–20 Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information from 1 January 2022.
Under STP Phase 2, the ATO requires all employers to report additional information through STP to clarify the payments made to employees. This information will include details such as income or payment type and the reason for any cessation of employment.
All Australian businesses that have employees on their payroll will be impacted by this change.
With expanded reporting requirements, STP Phase 2 will make it easier to provide specific employee information to the ATO and other government agencies like Services Australia.
STP Phase 2 Deferral
The ATO set a mandatory Phase 2 reporting start date of 1 January 2022, unless a deferral is in place.
MYOB and Xero have both obtained a deferral from the ATO until 31 December 2022.
Key changes of STP Phase 2
Tax file number declarations
Employers are currently required to submit a tax file number declaration to the ATO. Phase 2 will incorporate employee tax information via STP reporting, which eliminates the manual requirement to send copies to the ATO.
Termination reason
When an employee finishes their employment, employers must specify a reason for termination when processing an employee’s final pay.
Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO, removing the need for an employment separation certificate to be issued.
Income types
You already tell the ATO about the type of income your employees receive in your STP report.
The reporting of income types is being introduced in Phase 2 to more flexibly:
- Identify payments you make to your employees with specific tax consequences,
- Make it easier for them to complete their individual income tax return,
- Help the ATO identify where you are using a concessional reporting arrangement.
Tax treatment codes
Your STP Phase 2 report includes a six-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling the ATO about factors that can influence the amount you withhold from payments to your employees.
Country codes
There are instances where you might need to report a country code. For example, if you make a payment to an Australian resident working overseas, you need to provide information about the host country.
Lump Sum E payments
This is used when you make lump sum payments for back pay from prior income years.
Previously, this was shown on a separate line item in an employee’s payment summary. STP Phase 2 requires these payments to be reported within the tax year they originated in before finalising an employee’s records. This removes the need to provide employees with Lump Sum E letters.
Disaggregation of gross
STP report currently includes a gross amount. Because some of these are treated differently for social security purposes, STP reporting in Phase 2 will provide more detail.
Instead of reporting a single gross amount, you will now separately report:
- gross
- paid leave
- allowances
- overtime
- bonuses and commissions
- directors’ fees
- lump sum W
- salary sacrifice.
More detail on some of these reporting categories is provided below.
Paid and cashed out leave
Paid leave payments made to your employees will now be reported separately from gross payments in your STP report.
A new workflow is being developed for leave that’s cashed out rather than an employee taking time off.
Allowances
In STP Phase 1 reporting, some allowances are reported separately, but others were reported as part of gross.
Under STP Phase 2 reporting, all allowances will need to be itemised and reported separately to the ATO.
Bonuses and commissions
There might be times when you pay some employees bonus and commission payments, which are typically paid as a lump sum. Previously they were reported as part of gross payments, but for STP Phase 2 they’ll be reported separately.
Directors fees
If you pay directors’ fees, you must separately include these in your STP Phase 2 report.
Directors’ fees include payments to:
- The director of a company,
- A person who performs the duties of a director of the company,
- A member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated.
Lump Sum W (Return to work) payments
A return to work amount is paid to induce an employee to resume work. For example, to end industrial action or to return from working for another employer.
This is a new category of lump sum payments that is being introduced as part of STP Phase 2. Previously, these lump sum payments were reported as gross payments and not individually identified.
Salary sacrifice
Salary sacrifice can no longer be used to reduce ordinary earnings or count towards superannuation obligations, they need to be separately reported in STP. You can no longer report the post-sacrificed amount via payroll.
Child support garnishees and child support deductions
You'll have the option to include child support garnishees and deductions in your STP report. This will reduce the need to give separate remittance advices to the Child Support Registrar.
This is optional and not all STP-enabled solutions will offer this functionality.
Reporting previous Business Management Software IDs and Payroll IDs
You may have the option to provide the ATO with previous Business Management Software IDs and Payroll IDs in your STP report. This might occur when you've changed your business structure or changed software and can't zero out or finalise previous records.
Providing this information will help the ATO reduce and fix issues with duplicate income statements for employees in ATO online services.
This is optional and not all STP-enabled solutions will offer this functionality.
Full details on changes under STP Phase 2 is available on the ATO website.
How STP Phase 2 affects your business
Although you need to provide the ATO with more information, the way you submit STP reports won't change. The impact of STP Phase 2 will differ based on the unique qualities of your business and employees.
Your Digital Service Provider (DSP), such as MYOB or Xero, will update their STP-enabled software to offer Phase 2 reporting. When your STP-enabled solution is ready, your DSP will let you know what you need to do.
Benefits of STP Phase 2
Benefits for employers:
- No longer have to send the ATO your employees' tax file number (TFN) declarations. Your employees will provide it to you, and you'll need to keep it with your employee records.
- Use reporting income types to advise the ATO if you’re using a concessional reporting option (such as for closely held payees or for inbound assignees)
- No longer required to provide employees with Lump Sum E letters (if you make Lump sum E payments)
- Update the ATO via STP reporting if you change software or your employee’s payroll ID, which will help fix issues with duplicate income statements for employees in ATO online services.
- Real-time sharing of payroll information with Services Australia.
- No longer need to provide separation certificates when your employees leave as this will be captured in STP reporting.
- Voluntarily report child support deductions or garnishees (or both) through STP, removing the need to send separate remittance advices to the Child Support Registrar.
Benefits for employees:
- Improved visibility of types of income received and where it should be pre-filled on their tax return.
- Improved reporting will enable the ATO to monitor employees and flag if they have provided incorrect information that may lead to a tax bill. For example, where an employee hasn’t notified you that they have a study and training support loan.
- The ATO will share STP information with Services Australia, making it easier for agencies like Centrelink and Medicare to interact with their customers and to streamline claims.
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