What does Single Touch Payroll (STP) Phase 2 Involve?
Single Touch Payroll (STP) is being expanded from 1st January 2022. Known as STP Phase 2, it is intended to streamline interactions that you as an employer, and your employees have with the ATO by reporting more detailed information.
The ATO announced their proposed rollout earlier this year and payroll software providers have commenced working on their upgrades to enable the new reporting criteria to be effective from the commencement date.
What additional information needs to be included in STP lodgments from January 1st?
It is important to understand that STP Phase 2 does not change what you need to report through STP, but it does change how the amounts will be reported. We have included a summary of some of these key changes below:
1. Disaggregation of Gross Income
The various components that make up the gross income of your employees will be reported separately instead of as one lump sum (eg. normal gross, paid leave, allowances, overtime, bonuses and commissions etc).
2. Employment and taxation conditions
To date you currently report this information to the ATO in different ways. Under STP Phase 2 you will notify the employment status of your workforce via the STP platform (eg. you will no longer send off TFN declarations separately but instead report this through STP).
3. Tax types and Income types
Every employee will now be assigned a 6 character tax treatment code and a 3 character income type code. Most software solutions will automatically assign the correct codes to each employee from the data you enter that would normally be included on their TFN declaration. The purpose of these codes will assist with determining withholding and taxation obligations.
4. Country code
If you make payments to Australian residents that work overseas, you will need to provide information about the host country.
5. Child support garnishes and child support deductions
You will have the option to report this through STP instead of reporting separate remittance advices to the Child Support Registrar. As it is optional, some software providers may not include this in their upgrades.
6. Reporting previous Software ID’s and Payroll ID’s
If you change your business structure or change software providers and can’t zero out or finalise previous records, you may have the option to advise this through STP. This will help reduce and fix issues with duplicate income statements for employees in ATO online services, and again, is optional, so some software providers may not include this in their upgrades.
Flexible approach to Phase 2
The ATO understands that January 1st may not be a convenient date for all software providers or employers, so they have announced a “flexible, reasonable and pragmatic” approach to the transition to Phase 2. With this in mind, the ATO has allowed the following:
- Software providers can apply to the ATO for an extension on behalf of their clients if they are not going to have compliant software by the 1st of January. If the ATO grant this extension, your software provider will advise you of this.
- If you have compliant software but are working through the changes that you need to make to employee data, you have until 1st March 2022 to commence STP reporting through Phase 2.
- There will be no penalties for genuine mistakes for the first year of Phase 2 reporting until 31 December 2022.
What should employers do now?
Whilst you are waiting for your software provider to prepare the system, you can become more familiar with the reporting requirements STP Phase 2 will bring. The ATO has prepared an extensive Employers Guide which you can access here.
Then, when the time comes, your software provider will supply instructions on what you need to do to update each employee to be in line with the new criteria.
As always, we are here to help. If you have any questions or would like assistance with your STP obligations, please call us (03) 5221 6399 or email us at firstname.lastname@example.org to speak with one of our payroll specialists.
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Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.
This article was written by Bookkeeper Leanne Hamer.