What is Single Touch Payroll (STP)?
If you’re an employer in Australia, you might have heard of Single Touch Payroll (STP). Single Touch Payroll is a system introduced by the Australian Government to make payroll reporting easier and more efficient for business owners. Since its introduction in 2018, STP has required Australian employers to send payroll data—such as salaries, wages, pay-as-you-go (PAYG) withholding, and superannuation—directly to the ATO at the time of processing each pay run. This real-time reporting system aims to reduce small businesses’ administrative burden and help business owners stay compliant with tax regulations.
What is Single Touch Payroll (STP) Phase 2?
STP Phase 2 is an extension of the original STP initiative, and it’s designed to further streamline business payroll reporting while providing more detailed data to the ATO and other government agencies. The key objectives of STP Phase 2 are to:
- Improve transparency by requiring more detailed reporting of income types and payment conditions.
- Reduce the need for employers to provide the same information to multiple government agencies. The expanded data set allows for better data sharing between agencies.
- Simplify the tax return process for employees by pre-filling more accurate and detailed income information.
- Ensure compliance with social security laws by providing clearer data on employee payments and circumstances.
How STP Phase 2 Differs from Phase 1
While STP Phase 1 focused on the basics—like reporting gross wages, tax withheld, and superannuation contributions—STP Phase 2 brings in some important new changes:
1. Detailed Income Reporting
With STP Phase 2, employers must provide a more detailed breakdown of the income types they pay their employees. Instead of reporting just a gross amount, you must now specify each component of an employee’s pay separately. This includes different types of payments such as salaries and wages, allowances, overtime, bonuses, and commissions. By providing this detailed income reporting, you help the ATO get a clearer picture of the various types of payments made to employees, which in turn can simplify tax time for your employees and improve the accuracy of their pre-filled tax returns.
2. Disaggregation of Gross
Another key change is the disaggregation of gross payments. Previously, you might have reported all employee payments as a single gross amount. Under STP Phase 2, you now need to separate these payments into different categories, such as overtime, paid leave, allowances, and salary sacrifice. This breakdown allows for more accurate tax reporting and helps the ATO distinguish between different types of payments for compliance and social security purposes.
3. Employment and Taxation Conditions
Under the new reporting requirements, you also need to provide additional details about each employee’s employment basis. This means specifying whether they are employed on a full-time, part-time, or casual basis. Additionally, you must report the specific tax treatment that applies to each employee, which helps the ATO ensure that the correct tax is being withheld and that employees are being taxed correctly according to their employment type and income.
4. Cessation Date and Reason
If an employee leaves your business, STP Phase 2 now requires you to report the cessation date (the date they stopped working) and the reason for cessation (such as resignation, retirement, redundancy, or dismissal). This additional reporting helps the ATO understand the circumstances around an employee’s departure and ensures that any final payments, such as unused leave or redundancy payouts, are correctly reported and taxed.
5. Income Types and Country Codes
STP Phase 2 also introduces new requirements for reporting income types and the use of country codes for employees working overseas or with foreign employment income. If you have employees who earn foreign income or if part of their income is derived from overseas employment, you must report this using specific country codes. This change aims to provide a clearer view of foreign income and ensure the correct application of tax laws related to international employment.
6. Child Support Garnishees and Deduction Reporting
For those employers who are managing employees with child support obligations, STP Phase 2 brings in new reporting requirements for child support garnishees and deductions. You now need to report these directly through your STP-enabled payroll software. This direct reporting reduces the need for separate reporting to the Child Support Registrar and helps ensure that child support payments are accurately processed and recorded.
These changes are designed to make payroll reporting more accurate and comprehensive. Understanding these updates is essential to staying compliant with the new reporting requirements under STP Phase 2, ensuring continuous management of payroll processes effectively and avoiding any potential compliance issues.
Employer Obligations and Compliance Requirements
To ensure compliance with STP Phase 2, as an employer, you need to be aware of several new obligations:
1. Updated Payroll Systems
First, your payroll software must be updated to comply with STP Phase 2 requirements. It’s essential to check with your software provider to ensure that your system is ready to handle the new reporting standards. Most software providers have rolled out updates to accommodate STP Phase 2, but it’s your responsibility to implement these updates and verify that your payroll system can accurately capture and report the necessary data.
2. Employee Information
You’ll need to collect additional data from your employees to meet the new reporting standards. This includes more detailed information about their employment basis (full-time, part-time, casual), cessation reasons, and any specific tax treatment that applies. Gathering this information is crucial for accurate reporting and to avoid discrepancies with the ATO.
3. Reporting Deadlines
Under STP Phase 2, you are required to submit payroll reports on or before each payday. This real-time reporting ensures that all payroll data is up-to-date and accurately reflects the payments made to your employees. Make sure to stay on top of these deadlines to avoid penalties.
4. ATO Penalties for Non-Compliance
Failing to comply with STP Phase 2 requirements can result in penalties from the ATO. These penalties can vary depending on the severity and duration of non-compliance, but they generally involve fines and can also include further scrutiny of your payroll processes. It’s crucial to stay compliant to avoid these costly penalties and maintain a good standing with the ATO.
Conclusion
Compliance with STP Phase 2 is crucial for ensuring accurate and timely reporting of payroll information to the ATO. The updated requirements provide greater transparency and help streamline the tax process for both employers and employees. As a small business owner, it’s important to review your current payroll processes, update your systems, and collect the necessary employee information to stay compliant with these new rules.
To avoid potential penalties and ensure smooth reporting, take the time to assess your payroll setup and make the necessary changes. If you need help navigating the complexities of STP Phase 2, consider reaching out for professional assistance.
At Chan & Naylor, we specialise in helping businesses like yours stay compliant with the latest tax regulations. Contact us today to learn how we can support you through this transition and keep your payroll processes running smoothly.
About Chan & Naylor
Established in 1990, Chan & Naylor has been a trusted partner for thousands of businesses and investors across Australia. Choosing Chan & Naylor Pymble means you’re not just selecting a service provider; you’re gaining a partner aligned with your business goals. You’ll have access to a dedicated client manager supported by a team of accountants that specialises in business tax and investments. Contact us today for a discovery call so we can discuss how we can help you.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
