You need to be aware of a key change affecting your employees and the way their pay information is reported to the ATO. Your payroll software (MYOB, XERO etc) will need to be reviewed and settings for employees updated.
We want to let you know about this now, so you can plan to either adjust your payroll settings yourself or request our assistance.
What is STP phase 2?
In the 2019–20 Federal Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information.
Under Single Touch Payroll Phase 2, the Australian Government will require all employers to report additional information through STP on or before each payday. This information will include details such as income or payment type and the reason for any cessation of employment.
These STP changes are intended to benefit both employers and employees – especially with streamlining things at tax time each year so employees have correct information and can receive any tax refunds faster and Services Australia will always have up to date information.
Australian businesses that have employees on their payroll will be impacted by this change.
STP phase 2 changes
Under STP Phase 2, you need to report additional information to the ATO using your payroll software. The main changes are:
Tax file number declaration
Employers are currently required to submit a tax file number declaration to the ATO. STP Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.
Specifying a reason for termination will be mandatory when an employee finishes their employment.
Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. STP Phase 2 will require the reason for termination to be included in the STP report sent to the ATO.
Paid leave won’t be included as part of gross earnings when reporting earnings via STP. You will still need to report leave payments made to your employees in your STP report.
In STP Phase 1 reporting, some allowances are reported separately, but others are reported as part of gross.
You will now need to report all allowances separately in your STP Phase 2 report across most income types. This means that allowances previously reported as gross must now be separately itemised and reported.
If you pay directors’ fees, you must separately include these in your STP Phase 2 report.
Directors’ fees include payments to:
- The director of a company;
- A person who performs the duties of a director of the company; or
- A member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated.
Bonuses and commissions
There might be times when you pay some employees bonus and commission payments, which are typically paid as a lump sum. Previously they were reported as part of gross payments, but for STP Phase 2 they will be reported separately.
Other less common changes include the way this information is reported:
- Income type and country codes
- Lump Sum W (Return to Work) payments
- Tax Treatment Codes
- Lum Sum E (back pay from prior income years) payments
Xero STP phase 2
All businesses using Xero to manage their payroll are required to be STP phase 2 ready by 31 March 2023.
Under STP Phase 2, the Australian Government requires all employers to report additional information through STP on or before each payday. This information will include details such as an employee’s employment or income type and the reason for any cessation of employment.
Your business currently uses Xero to process payroll, which means you will need to update specific payroll settings to ensure you are compliant before the 31 March 2023 deadline.
Our assistance will give you peace of mind that your payroll software is correctly set up for STP Phase 2.Our plan to help you
We need to make the following settings adjustments in your payroll system for all employees:
- Review and update your Employee Details
- Review and update Pay Categories
- Review and update Leave Categories
- Review and update Pay Templates