Phase two of the Australian government’s Single Touch Payroll kicked off in January 2022, further reducing the reporting burden for employers who need to report information about their employees to multiple government agencies.
Reducing paperwork for employers while making it easier for employees to understand their payslips, Single Touch Payroll (Phase 2) streamlines the way your business interacts with the government. Taking advantage of Single Touch Payroll (STP), via your accounting or payroll software, eases that administrative burden and makes life much easier.
Our Bookkeepers strive to stay up-to-date with all changes within government reporting.
Last month our team attended The Institute of Certified Bookkeepers conference and learned about all the upcoming changes regarding STP2. We’ve put together the most important changes into bite-sized pieces so that you can be prepared for the transition to STP2.
As a business owner, it falls on you to ensure that you comply with STP2 requirements. Failure to do so will potentially result in penalties from the ATO. It’s important to note that genuine reporting mistakes will not be penalised until 31 December 2022.
What is Single Touch Payroll phase 2?
STP phase 2 aims to streamline the reporting obligations for the payer and payee and remove the need for manual reporting to other government agencies.
Phase 2 is about establishing an “all-inclusive” baseline dataset that incorporates reporting requirements for multiple government agencies. With this, Phase 2 will bring more complex reporting and requires additional preparation for the challenges of the next roll-out.
What changes will be made for STP phase 2?
We’ve summarised some of the main changes to STP reporting that will impact businesses below:
A reason for termination will be mandatory when an employee finishes their employment. Previously, 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 and so takes away the need for an employment separation certificate to be issued to the employee altogether.
Child support garnishee/deduction amount
Previously, an employer had to submit a deduction report to the relevant child support agency when they deduct the child support from an employee’s pay. Phase 2 will allow employers to report child support deductions/garnishees via pay events thus removing the need to report separately on a monthly basis. This will initially be voluntary reporting and if employers do not choose to report via STP they will need to continue to report monthly as per the existing processes.
Disaggregation of gross
Previously, the gross amount you reported contained different types of amounts depending on the particular income type. With Phase 2, components of gross earnings will now be itemised separately, with all payment types being reported consistently for each income type – this is to streamline the different income assessments required by government agencies.
Income stream collection
Employers will now need to classify the payments made to an employee following an ATO term called “Income stream collection” when they submit their STP report to the ATO. This includes income type, payment type and may also include a country code (for specific income types).
Tax file number declaration
Previously, employers were required to submit a tax file number declaration to the ATO detailing the tax information for new employees and any existing employees when their tax situation changes. Phase 2 will incorporate employee tax information via STP reporting, thus eliminating the need to submit tax file declarations to the ATO as a separate process
Tax treatment codes
Previously, employee tax information was part of the tax file number declaration. Phase 2 will introduce a 6 character tax treatment code to indicate what PAYG tax scales and other components were applied to the employee to determine withholding amount. This is something the payroll software vendor will have to change in their system for STP reporting rather than a new process for employers.
Lump sum E letters
At present, employers are required to provide lump sum E letters to employees each financial year. The STP changes will mean that this information will be included in the pay event prior to finalisation of the payee Income Statement and so will take away the need for the employer to provide the lump sum E letter altogether.
Transitioning employees from another payroll system
Businesses transitioning from one payroll system to another will be able to enter the previous BMS ID/payee IDs in the new system and then proceed to use the new system’s BMS ID/payee ID. The ATO will link the information so that there is only one income statement reported for each employee. This replaces the need for manual adjustments to ensure employee YTD earnings are not overstated.
Paid leave will no longer be incorporated as part of gross earnings when reporting earnings via STP. Rather, paid leave will be reported using itemised leave type codes.
Additional allowance type codes will be added to meet the new reporting requirements. This will allow the ATO to assist the employee when completing their IITR.
What should you be doing to prepare?
For employers and their advisors, the first thing to do is familiarise yourself with STP2 requirements and specifically, how they impact your reporting requirements.
Making time for an in-depth discussion between key decision makers and key advisors will be an important aspect to this. Employees should also be brought into the discussion once a clear view of the individual organisation’s requirements has been determined.
From that point on, preparation becomes a case of implementing a plan that will step you towards your compliance deadline. It’s a good idea, if you haven’t done so already, to engage a registered BAS agent to undertake a review of your current payroll, and get you set up for STP2. Don’t hesitate to reach out to the team here at Gecko Bookkeeping to book a time with our BAS agents should you have any questions, or require assistance with the transition.
For all official STP2 details and deadlines, visit the ATO website here.