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Single Touch Payroll - Phase 2

n the accounting world, we’ve had a few changes introduced in the last few years regarding how we conduct payroll activity. Specifically, we are talking about Single Touch Payroll Phase 1 and Phase 2.


STP was introduced in 2018 to streamline mandatory payroll-related interactions between employers and the Australian Taxation Office (ATO). Since the beginning of STP, we have been introduced to Phase 1 (2019) and Phase 2 (2022) requirements.

In this article, we will delve into the following:


  • What is single-touch payroll?

  • STP Phase 1

  • STP Phase 2

  • What are the main changes from STP phases 1 to 2?

  • Is it mandatory?

  • How do I ensure I am up to date and in compliance with changes?

  • Common mistakes


What is single-touch payroll?


Single touch payroll (STP) is a cloud-based reporting system. STP allows payroll information (salary, superannuation, PAYG) to reach ATO in real-time. It also simplifies and streamlines the end-of-year processes when submitting yearly payment summaries.

STP efficiently sends payroll information (salary, wages, PAYG, super liability information) from your accounting software to the ATO as you run your payroll.


STP Phase 1:

STP phase 1 came into effect in July 2018. As a result, employers with 20 or more employees were required to start this reporting. However, it was only in July 2019 that employers with 19 or fewer employees needed to undertake this.

STP phase 2 required employees to use payroll reporting software to report payments and summaries. This requirement aims to streamline and simplify reporting to increase transparency and accuracy between employers and ATO.

STP Phase 2:

STP phase 2 has been introduced as of 1 January 2022. Phase two is a continuation of what was established in phase 1. However, phase 2 requires employers to report additional information through their payroll software. It also aims to reduce the burden on businesses that must report their payroll information to multiple government agencies.

STP phase 2 was introduced as of 1 January 2022, but some payroll providers, such as MYOB and Xero, have exemptions to start at a later date. Some payroll providers, however, still need to move to STP phase 2 and are yet to announce their requirement date.


What are the main changes from STP phases 1 to 2?


In STP phase 1, you must report payments in a single gross amount of many different payment types. In phase 2, many of these payments need to be reported separately.


STP phase 2 still requires you to submit your report at the same due date, with the same tax and superannuation details, and then the end-of-year finalisation declaration for each employee will remain the same. However, there is a reduction in some reporting requirements and additional areas to provide extra data in payroll files.

Reduced reporting requirements in the following areas:


- Tax file number declarations

You will now be required to include information collected from TFN declarations in your STP reports. You will no longer need to send these declarations to the ATO.


- Employee separation certificates

You will now report employee leave through STP reports, and certificates are no longer required.


- Lump Sum E-payments

Lump Sum E payments no longer need to have a letter provided to the employee; this information is now reported directly in detail in the employee's income statement.


- Child Support

This is optional, but businesses may now include (in some payroll software, not all) child support deductions in their reporting.


Additional areas to provide extra data in payroll files:


- Breaking down payments

In phase 1, you reported payments in a single gross amount, and now you will separately report information such as paid leave, overtime, commissions or bonuses, and more.


- Employment and taxations information

As mentioned in the reduced requirements, employers will now report reasons for leave through STP instead of acquiring a certificate of separation.


- Income streams

Each payment made to employees (with few exceptions) will now be grouped into income types, distinguished by a three-letter code. This may also require the employer to provide a country code depending on their employee's terms of employment.


- Child support

As mentioned in the reduced requirements, reporting these payments is optional. However, choosing to report these amounts removes the need for extended reporting from employers to the Child Support Registrar.


Is it mandatory?


Since July 2019, STP has been mandatory for all businesses that withheld employee PAYG contributions.

However:


- If your business is no longer trading

- If you do not have employees

- If your business has changed its structure

- If your business has paused trading due to Covid-19

- If you are a sole trader

- If you are a contractor or freelancer

You may not be required to complete STP reporting.

How do I ensure I am up to date and in compliance with changes?


Your payroll processes will need minor adjustments with the reduction in some requirements and additional information required in some areas. The size of adjustment will come down to your structure, type of employees, and size of each company, as well as the current systems they use.

You must ensure your payroll software is capable of STP reporting, and upgrading to a cloud-based software provider is best to ensure you can report the new STP requirements. Note that low-cost STP reporting solutions are available for smaller employers who are hesitant to purchase payroll software.

Some resources and support will be available to all businesses as they transition from phase 1 to phase 2. Overall, the change in systems and processes will benefit both the employer and employee with smoother, more transparent reporting in place.

Common Mistakes


Since phase 2 reporting began in January 2022, there have been a few common errors submitted from employers that the ATO has pinpointed.


Here are some to be aware of:


  • Ensure you use the correct pay codes or categories for items listed separately. This could include commissions or bonuses, overtime, paid leave, etc.


  • Some software requires you to input year-to-date calculations manually. Ensure to double-check your calculations to avoid errors in your reporting.


  • Ensure your allowance categorising is reported separately under STP phase 2.

Contact one of our experts at Ironbark Industries Bookkeeping for further clarification and advice on STP as your payroll functionalities are integral to your reporting requirements.


https://www.ironbarkindustriesbookkeeping.com/contact




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