Get ahead of the curve: Planning for single touch payroll phase two

Phase 1 of the Single Touch Payroll (STP) initiative was first announced in December 2015, with the ambition of simplifying tax and superannuation business reporting and to keep better track of business-to-employee payments and other related information.

The ATO has been happy enough with the slow-burning adoption of the first stage that it’s decided to ramp things up a notch with Phase 2.

STP Phase 2 represents the expansion of STP Phase 1 with the requirement of additional information from employers, and is being sold to the public as something that will further reduce the reporting burden for businesses that disclose to multiple government agencies.

In a nutshell, the whole point of STP Phase 2 is to reduce the amount of duplicate info you need to provide to the government, and to make it easier to understand your obligations.

The mandatory start date has been pushed back to January 1, 2022, from an initial deadline of July 1, 2021.

What’s new with STP Phase 2?

• Extra fields in your STP-enabled software;
• Simpler reporting, including the end of separate child support, and an updated capability to capture back-payments;
• No more need to provide hard copies TFN declarations and separation certificates; and
• Updated privacy measures and better data protection.

Generally speaking, the ATO is seeking more detailed information about your employees and your payroll activities, including:

Employee status and cessation: You’ll need to disclose whether your employee is full-time, part-time or casual (that’s why you’ll no longer need to send in TFN Declarations). You’ll also need to provide a reason for any employee’s cessation in your STP report (for example, if it was voluntary, a redundancy, or due to illness). This flags the end of separation certificates.

Income type and country code: This is being introduced to identify payments you make to your employees with specific tax consequences, and to reportedly make it easier for them to complete their individual income tax return.

What extra information will be required in STP Phase 2?

1. Employee status and cessation

   You’ll need to disclose whether your employee is full-time, part-time or casual (that’s why you’ll no longer need to send in TFN Declarations). You’ll also need to provide a reason for any employee’s cessation in your STP report (for example, if it was voluntary, a redundancy, or due to illness). This flags the end of separation certificates.

2. Income type and country code

   This is being introduced to identify payments you make to your employees with specific tax consequences, and to reportedly make it easier for them to complete their individual income tax return.

3. Gross income and allowances information

   You’ll need to report all allowances separately, not just expense allowances. At the moment your STP report just churns out a gross amount, which is the total of all your different payment types.

4. Lump sums

   There are also changes on how lump sum payments will be categorised, including:

   • When making lump sum E (back) payments, the amount for each financial year relevant to the lump sum must now be included; and
   • Return to work payments (Lump sum W), will now be reported separately.

5. Reporting previous business management software IDs and payroll IDs

   There is going to be an option to provide the ATO with previous business management software IDs and payroll IDs, which will purportedly help reduce and fix issues with duplicate income statements for employees.

How you’ll need to differentiate expenses

Because some of these are treated differently for social security purposes, you’re going to have to provide more detail in regards to:

• Allowances. Extra allowance codes will be available to choose from, such as cents per kilometre vehicle costs, overtime meals, travel, tools, tasks, qualifications and certificates;
• Bonuses and commissions;
• Directors’ fees;
• Overtime;
• Paid leave e.g. paid parental leave vs annual leave, or ancillary and Defence leave, as well as workers’ compensation; and
• Salary sacrificed amounts will now have to be reported, the justification being that it will make it easier for employees to understand their superannuation entitlements.

What ISN’T changing

• STP report lodging procedures;
• Lodgment deadlines — which are on or before payday, unless you’ve successfully applied for a concession; and
• The categories of payments that you need to report.

What’s required now

The government says it’s still working with its digital service provider partners (DSPs) — there’s more than 550 — to update their software, and what you’ll eventually need to do will depend on what product you use and how you manage your payroll.

When your provider’s STP-enabled solution is ready, they’ll let you know about the steps you should take.