What is Single Touch Payroll (STP)?
STP is an Australian Government initiative to reduce employers’ reporting burdens to government agencies and assists them in streamlining the reporting of tax and superannuation information. Employees’ payroll information is reported each time the employee is paid on or before the payday through STP-enabled software. Payroll information includes salaries and wages, pay as you go (PAYG) withholding and superannuation.
All companies are required to use STP. STP was first introduced on 1 July 2018 for employers with 20 or more employees and 1 July 2019 for employers with 19 or fewer employees. Several concessions have been made available depending on business, industry, or employer types, with most of these ending on 1 July 2021.
Employers with any current concessions will need to be reporting each payday through STP by 1 July 2021.
Employers who have not yet started reporting through STP will need to start reporting as soon as possible.
What is the mandatory start date for all employers to start using STP Phase 2?
The mandatory start date for STP Phase 2 reporting is 1 January 2022.
Why is it important that employers start using STP?
The expansion of STP (known as STP Phase 2) reduces the reporting burden for employers who need to report information about their employees to multiple government agencies. It also supports the administration of the social security system.
- Reduces the duplication of information employers provide to the government, which will also reduce unnecessary interactions, including
- incorporating the reason for an employee ceasing employment to reduce the need for separation certificates
- reporting child support garnishee and deduction amounts voluntarily through STP instead of through the separate manual remittance process.
- Removes the need to send the tax file number and withholding declaration information to the Australian Taxation Office (ATO) – this will now be captured in the employment conditions section of the STP report.
- Better defines the components that make up gross income that will
- make it easier for employers to understand their obligations
- help employees understand their earnings and help them with their interactions with Services Australia
- ensure consistency of reporting across the various income types.
- Ensures that all employee payments will be reported by income type (or income streams), including
- salary and wages
- foreign employment income
- closely-held payees
- working holidaymaker.
What changes can employers expect for STP Phase 2?
- Reason for Termination
It will be mandatory to report the reason for an employee’s termination to the ATO via STP. Employers will no longer be required to provide an employee with an employment separation certificate, as this will now be in the STP report.
- Income Stream Collection
When employers submit their STP report to the ATO, they must classify the payments to employees under the ATO term Income Stream Collection, including income type and payment type.
- Transitioning Employees to Another Payroll System
Businesses transitioning to a different payroll system can enter the previous BMS ID/payee IDs into the new payroll system and continue using it. As the ATO will link the information, there will only be one income statement reported for each employee, replacing the need to adjust employee YTD earnings after transitioning payroll systems manually.
- Tax File Declarations
Employee tax information will be incorporated via STP reporting. This will eliminate the need to submit tax file declarations in a separate process.
- Child Support Deduction
Employers will be able to report child support garnishee/deductions via pay events in Phase 2. This removes the need to report it separately every month. As this will be initially voluntary, employers who choose not to report via STP will have to continue reporting monthly through the existing process.
- Lump Sum E Letters
Employers will no longer be required to provide lump sum E letters to employees at the end of each financial year. Phase 2 means that this information will be included in the pay event before finalizing the employee’s income statement.
- Paid Leave
Paid leave will be reported using itemized leave type codes and no longer be incorporated as part of gross earnings when reporting earnings via STP.
- Allowance Items
For the ATO to assist employees when completing their individual income tax returns, additional allowance-type codes will be added to meet reporting needs.
- Negative YTD Reporting
Negative YTD amounts are allowed to be submitted via STP.