The 2019-20 Budget saw the government's announcement of the inclusion of additional information in Single Touch Payroll (STP). This expansion, commonly referred to as STP Phase 2 (STP Phase 2), aims to lessen the reporting requirements for employers who need to submit employee-related information to various government agencies. This development also benefits the customers of Services Australia, who could potentially be your employees, by ensuring timely and accurate payment.
Why is Single Touch Payroll being expanded with Phase 2?
According to the Australian Taxation Office (ATO), there are multiple benefits to both employers and employees that stem from Single Touch Payroll Phase 2.
BENEFITS TO EMPLOYERS
Employers can benefit from the implementation of STP Phase 2 by streamlining their interactions with the ATO in the following ways:
There will be no need for employers to send their employees' Tax File Number (TFN) declarations as employees will provide this information to their employers and it will be kept with their employee records.
Employers using concessional reporting options, such as for closely held payees or inbound assignees, will be able to report income types through STP.
When making a Lump sum E payment, employers will no longer need to provide Lump sum E letters to their employees as the amount and related period will be included in their report.
If employers change their software or their employee's payroll ID, they can inform the ATO through their STP report, which will help resolve any issues with duplicate income statements for employees in ATO online services through myGov.
Payroll information reported to the ATO will be shared in near real-time with Services Australia, who will use it to streamline requests for employment and payroll information from employers and employees, such as pay slips for prior periods. Employers may no longer need to provide separation certificates as the date and reason for an employee leaving will be in their STP report.
Employers can voluntarily report child support deductions or garnishees (or both) through STP, reducing the need to send separate remittance advices to the Child Support Registrar.
BENEFITS TO EMPLOYEES
Phase 2 includes changes that can help the ATO streamline interactions for employees, such as:
Improved visibility of income types received, making it easier for employees at tax time as their individual income tax returns can be pre-filled accordingly.
The new information reported will enable the ATO to notify employees over time if they have provided incorrect information that could lead to a tax bill. For instance, if an employee fails to inform their employer about their study and training support loan.
STP information will be shared with Services Australia to streamline their interactions with customers. Over time, STP data will improve their services by pre-filling known details, reducing the need for frequent customer contact, and simplifying claims by reducing the need for excessive documentation. Additionally, Family Tax Benefit processes will be enhanced by sending SMS and email notifications to customers when their family income estimate is too low or if there are any job or employment changes. STP information will also help ensure that customers receive the correct payment amount and assist Services Australia in managing customer debt by utilizing employment and income history data to aid in repayment.
What are the main changes in STP Phase 2?
The majority of the supplementary information required for the STP report should already be recorded in your existing payroll software.
The main modifications to the STP report comprise:
Disaggregation of gross
Employment and taxation conditions
Business Management Software IDs and Payroll IDs
DISAGGREGATION OF GROSS
Your current STP report comprises a lump sum amount that includes various components and payment categories. However, due to the differing treatment of certain components for social security purposes, you are now required to provide a more detailed report.
EMPLOYMENT AND TAXATION CONDITIONS
When managing your employees in payroll, various factors come into play, such as their employment basis, Tax File Number declaration information, and reasons for leaving. Currently, you provide this data in various formats and through different forms.
However, Phase 2 simplifies this process by integrating the information into your STP report. In Single Touch Payroll Phase 2 (STP Phase 2), employee tax information will be integrated through STP reporting, thereby eliminating the requirement to submit tax file declarations separately to the Australian Taxation Office (ATO).
Your STP report currently includes information about the type of income your employees receive. With the introduction of income types reporting in Single Touch Payroll Phase 2 (STP Phase 2), you will be able to specify payments made to your employees with particular tax implications. This will make it more convenient for them to complete their individual income tax returns and assist the Australian Taxation Office (ATO) in identifying where you are using a concessional reporting arrangement.
At times, it may be necessary to include a country code in your report. This may be the case when making a payment to an Australian resident who is working outside the country, and you are required to provide details of the host country.
You will be provided with the choice to add child support garnishees and deductions to your STP report. Doing so will diminish the requirement of presenting separate remittance advices to the Child Support Registrar.
It is worth noting that this feature is optional, and not all STP-enabled solutions will provide this functionality.
BUSINESS MANAGEMENT SOFTWARE IDS AND PAYROLL IDS
You may be given the choice to provide the Australian Taxation Office (ATO) with your previous Business Management Software IDs and Payroll IDs in your STP report, especially when you've altered your business structure or software and are unable to finalise or zero out previous records.
By providing this data, the Australian Taxation Office (ATO) can rectify any duplicate income statements for your employees in ATO online services and minimise errors.
It is important to note that not all STP-enabled solutions will provide this feature, and it is optional.
WHAT ISN'T CHANGING?
Although there are additional details that need to be included in your STP report, several aspects will remain unchanged, including:
The process for lodging
The deadline for submission
The necessary payment types
Tax and superannuation responsibilities
The finalisation requirements at the end of the financial year
When is the STP Phase 2 start date?
The mandatory start date employers need to initiate Single Touch Payroll Phase 2 reports by is 1 January 2022. However, employers who need more time to gather the necessary data for Phase 2 can request approval to comply.
According to the Australian Taxation Office (ATO) penalties will not be incurred for genuine mistakes in your first year of STP Phase 2 reporting.
Are there additional reporting requirements?
Additional reporting requirements for work types and disaggregating gross incomes are added, and country codes are included.
Does my business need to comply with STP?
The implementation of Single Touch Payroll (STP) has become a mandatory requirement for companies that withhold PAYG contributions from their employees. Phase 2 of STP also remains mandatory. However, a freelancer who does not have any employees is not obligated to comply with the STP requirement.
How will these changes impact business?
This change will require an initial minor modification to the payroll system for all employers. The extent of additional reporting required will depend on factors such as the size of the business, its structure, employee types, and the existing systems in place.
If you need assistance implementing STP Phase 2 or are having trouble with managing employee's pay, including: employee records, tracking paid leave, overtime bonuses, or general payroll data issues, you should seek professional advice
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Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.