Single Touch Payroll – How to Finalise at End of Financial Year
Any small business owner will tell you that running and managing operations consistently is no walk in the park. In fact, a change or a challenge could even be the reason you decided to go into business in the first place. But as the way we work is better-shaped and we constantly strive for efficiency and improvement, it’s important to understand and keep up with financial management, along with tax and employee obligations.
Let’s discuss Single Touch Payroll and what you need to know about finalising for tax time before the End of Financial Year rush!
What is Single Touch Payroll?
Single Touch Payroll or STP, is the new and improved process of payroll management that you’ll need to adopt as a business owner in Australia. Think of it as a streamlined version of the traditional payment summary creation and distribution we’ve all been accustomed to for decades.
It is now also mandatory as of 1st July 2019 for all Australian employers.
Put simply, each time you pay your employees, you must now send their wages, salaries, PAYG and super information directly to the ATO. This is done using STP-enabled software and designed to make our lives as employers just that little bit easier, along with improving employee access to their income information.
Why is it better than traditional systems?
Making the move to a Single Touch Payroll system benefits both employers and employees alike. Some of the ways it’ll be an advantage to your business are:
*It’s relatively inexpensive to set up.
* It’s a time saver – payroll information is sent every pay period turning one monumental tax task into multiple smaller, less time-consuming tasks.
* Reduces human errors – some of the important sections are prefilled to avoid doubling up on work and making tedious mistakes.
* No more payment summaries – all your employee’s info is available in their myGov account, which means no more being hassled about distributing them on time etc.
* Provides flexible access to year-to-date income and super information.
Getting ready for EOFY Finalisation
Prior to STP, employers would have to provide employees with a paper Payment Summary by 14th of July and submit their employee’s information manually to the ATO on a yearly basis by 14th of August. This has now been replaced by payroll software and, like many things, allows for automation to take over. Pay periods and payrolls are now conveniently linked whether you pay your employees on a weekly, fortnightly or monthly basis. All you have to do now is prepare and finalise everything before the End of Financial Year deadline.
What does it mean to ‘finalise’?
As you’d likely already know, ATO compliance is never something to be overlooked or worth trying to manipulate. The same goes for Single Touch Payroll systems and finalising your submissions for the year.
Finalisation regarding STP means you’re required to submit what is called a ‘finalisation indicator’ for all employees and contractors who are “deemed employees” you paid during the financial year and withheld tax from.
Once the ATO has received the indicators, the tax return information will be made available in the employees’ myGov account and the return is ready to be submitted and processed. You can finalise an employee or contractor at any time for circumstances such as you no longer employ them, or a contractor’s job was completed etc. You don’t need to wait until the 14th July every year to begin finalisation either, you can begin the process any time you are ready.
Just remember that failing to finalise all your employees by July 14 could see you receiving a hefty penalty so make sure you make finalisation a priority nice and early!
An Important Note
Before finalisation you should:
1. Ensure all payments up until 30th June are entered.
2. Double-check to see if all pays and year-to-date totals are 100% correct.
3. Backup or make a copy of your file.
If you’re a little unsure and need a hand with EOFY finalisation, speaking to a BAS or Tax Agent is highly recommended!
Important Things your Employees Should Know
Your employees need to be informed of any changes to payroll and other tax obligations that may occur while they’re working for you. Maintain a happy workplace environment and let your staff know that:
*They will no longer receive a traditional payment summary from you.
* They will now be required to set up a myGov account and explain how easily it can be done.
* They’re able to access their year-to-date income information in real time whenever they wish via their myGov account – this is now called an Income Statement.
* All employee details are required to be updated correctly before finalisation on both your end (the employer), and with the Australian Tax Office – they should be made aware that incorrect details can cause access issues, processing delays among other sorts of problems.
* They will need to wait for the Income Statement to be considered ‘Tax Ready’ by the ATO before starting their lodgement.
Single Touch Payroll has been a gamechanger. As more and more small businesses embrace it leaving traditional payroll systems in the past, they’ll begin to notice the benefits and the reasons for shifting to it. It’s a win for Australian small business and while it might take a bit of getting used to if it’s your first year, it’s crucial to know how to correctly finalise your payroll, keep your employees informed and stay updated on the latest tax information and procedures!
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