Single Touch Payroll has significantly changed how businesses in Australia maintain and report their payroll to the Australian Taxation Office (ATO). While the effort it took to implement the first phase of STP reporting is a distant memory, STP Phase 2, launching on 1 January, 2022, brings additional reporting requirements and new challenges for businesses and their payroll software partners.
We know from experience that meeting STP requirements and ensuring STP-compliant payroll is a time consuming and intensive process for businesses. Requirements for software vendors as they certify their solutions for STP compliance is no less critical.
Before we can move forward with STP Phase 2, we need to know more about why STP is expanding its requirements.
Why the ATO has upgraded Single Touch Payroll
Single Touch Payroll reduces the burden for employers when reporting payroll information to the Australian government. By removing the cumbersome manual process of pay reporting, STP streamlines the payee and payer’s reporting requirements for efficiency and easy accessibility. While employers benefit from a modernised submission process, the Australian Taxation Office can now easily handle Individual Income Tax Return (IITR) for employees. The change in reporting requirements under Single Touch Payroll Phase 2 also calculates income-tested payments accurately for yearly employee earnings.
Businesses no longer need to spend time or effort creating processes for submitting payroll reporting to separate government agencies. STP Phase 2 supports the employer’s capability to provide detailed data reporting to multiple government agencies simultaneously. It also expands the collection, aggregation, and analysis of data from a diverse set of sources in real-time. What is the benefit of receiving payroll data in real-time? Overall, STP Phase 2 creates a standard dataset model that merges the required reporting elements across government agencies.
For both the ATO and Services Australia, capturing additional employee data results in the handling of fewer forms. They will also spend less time contacting employers verifying form information. This captured data will facilitate audit activities for government agencies. For example, income support recipients can now receive the correct payments every time through Services Australia.
How can employers prepare for Single Touch Payroll Phase 2?
In our experience, it is a good idea for every business to look at current payroll processes and system configurations to review pay clauses and elements well before any major release that may affect ATO compliance. These elements should align with the upcoming STP Phase 2 reporting requirements. For example, to achieve the stated requirements we would suggest setting up Annual Leave on Termination and Annual Leave pay items separately. Also, ensure Annual Leave categories are adjusted to allow for Annual Leave pay items and not Base Hourly pay items. These are just a couple of suggestions and each business should review their own, unique payroll configuration.
STP Phase 2 reporting changes
While some of the reporting changes are technically advanced, the summary below highlights the scope of Single Touch Payroll Phase 2 changes:
- Child support deductions and garnishees: Eliminates the need for employers to deliver remittance and deduction reporting separately to the Child Support Registrar. With STP Phase 2, employers can report child support deductions and garnishees deducted from employees’ paychecks each pay period. Initially, this is an option for businesses that want to participate. If employers decline reporting Child Support Deductions through Single Touch Payroll, they can use the existing procedures to report monthly deductions directly to the appropriate government agencies.
- Employment separation certificates: Employers no longer need to report employment separation certificates to Services Australia under STP Phase 2. The main reason for reporting employment separation is to convey the mandatory termination reason that ended the employer-employee relationship. STP Phase 2 requires the termination reason to be included in the report sent to the ATO. Employers will not be required to send an employee an employment separation certificate with this roll-out.
- Tax File Number (TFN) declaration forms: Currently, employers submit a tax file number declaration informing them of changes to taxes withheld for existing employees and tax information for new employees. Employers no longer need to submit tax file declarations to the ATO separately in STP Phase 2.
- Tax treatment codes: STP Phase 2 initiates a new six-character tax code stating the PAYG tax scale and other tax attributes applied to the employee’s pay. This data is critical in determining payee withholding while remaining compliant with the ATO. Working with your payroll software vendor is necessary to ensure the appropriate system upgrades apply for accurate STP reporting.
- Disaggregation of gross income: Before Single Touch Payroll, reported earnings were combined and reported as gross income or earnings. Employers report gross income as separate itemised elements or payment types under STP Phase 2. The reported itemised components include bonuses, commissions, directors’ fees, overtime, paid leave, and salary sacrifices. Another attribute of gross income includes employee allowance. While some allowance types are currently reported, under the STP Phase 2 expansion, additional allowance codes are implemented to meet new STP reporting requirements. Employers need to report all employee allowances like overtime, meals, travel, and certifications separately.
- Lump sum E letters: At this time, employees receive lump sum E letters each year from their employers. With STP Phase 2 implementation, this data is included in the STP reporting each pay period before finalising the employee’s income statement. Employers no longer need to provide the lump sum E letter to employees.
- Lump sum W payments: Previously included and reported as gross income, lump sum W payments encourage people to resume work under circumstances that require an end to industrial action or an employee to leave another employer. With STP Phase 2 reporting, it is now reported separately as a lump sum.
- Conversion from one payroll system to another payroll system: Businesses converting employees into a new payroll system can enter the previous Business Management System ID/Payee IDs on file into the new system, transitioning the employer to use the new system BMS ID/Payee ID. The ATO links the information, so only one employee income statement is created.
Benefits of STP Phase 2
STP Phase 2 will reduce redundancies in, and streamline the current reporting and submission process. Bottom line is that the benefits should help employers and employees as well as accountants and government agencies.
With STP Phase 2, businesses will no longer be required to complete separate exercises for:
- Preparing and providing terminated employees with Employment Separation Certificates.
- Preparing and submitting the payment summary annual report to the ATO.
- Providing employment payment summaries.
- Reporting and submitting a monthly child support deductions report.
- Delivering employee TFN declarations to the ATO.
Employees also receive far-reaching advantages, which include:
- Increased accuracy and promptness of employee payments.
- Lower employment income-related debts.
- Expanded visibility on how changes to income influence a claim.
- Decreased labour and error in the calculating of reported income for income support payments.
- Improved equity in establishing an individual’s capacity to pay debts.
In the initial phase of STP, we learned that employers need to prepare their business and were advised that companies should work with their payroll software vendor to accommodate the STP requirements, and Phase 2 is no different. By adapting to Single Touch Payroll Phase 2 requirements quickly, you can get ahead of the curve.
Tambla can help you prepare for STP Phase 2
Tambla Business Services leverages SAP SuccessFactors to deliver an efficient and compliant payroll system. We can design, implement, support and manage SAP SuccessFactors Employee Central Payroll. The result: automation, reduced risk, improved accuracy and simple payroll management across your business.
Our capabilities include preparing your SAP payroll systems for Single Touch Payroll Phase 2. Visit our Payroll Software and Solutions page to learn more.