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What is Single Touch Payroll (STP) Phase 2?

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1 March 2023 Read time: 3 min

With the deadline to enrol fast approaching, we’re fielding lots of questions about Single Touch Payroll Phase 2.

Here’s a deep dive into all things STP and the program’s Phase 2 changes.

What is Single Touch Payroll (STP)?

 

Single Touch Payroll (STP) is an Australian Government initiative designed to reduce your business’ reporting responsibilities, and eliminate the need for annual payment summaries.

With STP, you report your employees’ payroll information to the ATO each time you pay them through STP-enabled software.

Payroll information includes:

  • salaries and wages;
  • pay as you go (PAYG) withholding; and
  • Superannuation.

 

Why did the ATO change to Single Touch Payroll?

 

STP was designed to streamline your payroll process and improve compliance with taxation and superannuation obligations.

By enabling the ATO to access the information in real-time, the STP system also reduces the need for employers to complete multiple forms and reports, and eliminates the need for annual payment summaries.

 

Is Single Touch Payroll mandatory?

 

Single Touch Payroll is mandatory.

Employers with 20 or more employees were required to start using STP from 1 July 2018. Those with 19 or fewer employees were required to start using it from 1 July 2019.

There are some exceptions and alternative reporting arrangements available for certain situations, such as closely held payees and micro-employers.

 

What’s Single Touch Payroll Phase 2?

 

The expansion of STP, also known as Single Touch Payroll Phase 2, will streamline reporting information about your employees to government agencies.

Particularly, the key changes to reporting are:

  • Disaggregation of gross payments;
  • Employment and taxation conditions;
  • Income types;
  • Country codes;
  • Child support;
  • Business Management Software IDs and Payroll IDs.

You can learn more reporting changes here.

 

Is Single Touch Payroll Phase 2 mandatory?

 

Single Touch Payroll Phase 2 is mandatory. Xero users (the vast majority of our clients) have been granted an extension and reporting is set to commence from 31 March 2023.

It is important that by this date you have enrolled your business into STP Phase 2.

 

Benefits of STP Phase 2.

 

Benefits for employers.

 

The ATO uses the STP Phase 2 information to streamline employer interactions.

For example:

  • You’ll no longer have to send the ATO your employees’ tax file number (TFN) declarations. Your employees will provide it to you, and you’ll need to keep it with your employee records.
  • If you’re using a concessional reporting option, such as for closely held payees or for inbound assignees, you’ll be able to tell the ATO through reporting income types.
  • If you make a Lump sum E payment, you won’t need to provide Lump sum E letters to your employees.
  • If you change software or your employee’s payroll ID, you can tell the ATO in your STP report if your solution has this functionality. This will help fix issues with duplicate income statements for employees in ATO online services through myGov.

 

The ATO also shares payroll information you report to them in near real-time with Services Australia. They’ll use it to streamline requests:

  • for you to provide or confirm employment and payroll information about your employees;
  • from your employees to provide employment and payroll information such as pay slips for prior periods.

 

Benefits for employees.

 

Some changes under Phase 2 helps the ATO streamline interactions for employees, such as:

  • Making it easier for employees at tax time now that the ATO has better visibility of the types of income received and where it should be pre-filled on their individual income tax return.
  • Over time, the new information reported will allow the ATO to tell employees if they’ve provided you with incorrect information that may lead to them getting a tax bill. For example, where an employee hasn’t notified you that they have a study and training support loan.

 

The ATO also shares STP information with Services Australia so they can streamline interactions with their customers. Over time, they’ll use STP data to improve their services by:

  • pre-filling details they already know – saving their customers time filling out claims and reports.
  • reducing how often they’ll need to contact customers – STP will give them some information that they currently need to confirm by phone or online.
  • streamlining claims – their customers won’t need to supply as many documents.
  • enhancing Family Tax Benefit processes – by sending SMS and email messages to their customers when:
    STP data shows their family income estimate may be too low;
    they have a new job;
    their employment has changed.
  • helping them pay their customers the right amount.
  • using STP information to improve the customer experience if a customer has debt to pay. STP information allows Services Australia to understand their customers’ recent employment and income history – this helps them assist customers to repay any money owed.

 

How do you set up STP Phase 2?

 

If you’d like assistance with setting up and transitioning your business to STP Phase 2, contact us.

Alternatively, you can review your employer guidelines on the ATO’s website.

Reporting changes in STP Phase 2.

Disaggregation of gross payments

Your Single Touch Payroll (STP) reporting obligations currently include reporting a gross payment amount. This is often the total of many different components and payment types. Given that many of these payments are treated differently for social security purposes, you will now need to report more detail.

 

Employment and taxation conditions

There are many factors that influence how you manage your employees in your payroll. These include:

  • their employment basis;
  • the information on their TFN declaration;
  • details of when and why they leave.

You currently provide this information in different ways and on different forms. Phase 2 streamlines this process by including the information in your STP report.

 

Income types

You already advise the ATO about the type of income your employees receive in your STP report.

The reporting of income types introduced in Phase 2:

  • identifies payments you make to your employees with specific tax consequences;
  • makes it easier for them to complete their individual income tax return;
  • helps the ATO identify where you are using a concessional reporting arrangement.

Country codes

Sometimes you’ll need to report a country code. For example, if you make a payment to an Australian resident working overseas, you’ll need to provide information about the host country.

 

Child support

You’ll have the option to include child support garnishees and deductions in your STP report. This will reduce the need to give separate remittance advices to the Child Support Registrar.

Note – This is optional and not all STP-enabled solutions will offer this functionality.

 

Business Management Software IDs and Payroll IDs

You may have the option to provide the ATO with previous Business Management Software IDs and Payroll IDs in your STP report. This might occur when you’ve changed your business structure or changed software and can’t zero out or finalise previous records.

Providing this information will help the ATO reduce and fix issues with duplicate income statements for employees in ATO online services.

Note – This is optional and not all STP-enabled solutions will offer this functionality.

Speak to the team.