In our May 2021 blog post “Single Touch Payroll – Here comes Phase 2!” we informed you of proposed changes to Single Touch Payroll (STP) and the introduction of STP Phase 2.
The STP Phase 2 reporting rules have now been passed by Parliament and the mandatory start date is 1 January 2022.
STP Phase 2 reporting will continue to take place through your payroll digital service provider (DSP).
The ATO has adopted a flexible approach to transition to STP Phase 2 and DSPs who need more time to make changes and update their solutions can apply for a deferral.
For example, Xero has advised that they have been granted a deferral to 31 December 2022. This means that customers that are using Xero Payroll, will have until 31 December 2022 to report their first STP Phase 2 pay run.
We encourage you to enquire about the STP Phase 2 reporting status (and applicable deferral dates) with your payroll software provider. If your payroll software provider is ready for STP Phase 2, you may begin the report.
Your payroll software solution may require some setup prior to the lodgement of your first STP Phase 2 pay run. Reach out to your payroll software provider for set-up information.
What are the key reporting changes?
#1 Disaggregation of Gross
Rather than reporting a single gross amount, the following will be reported separately under the new STP Phase 2 reporting rules (additional information may be required):
• gross
• paid leave
• allowances
• overtime
• bonuses and commissions
• director’s fees
• lump sum W (return to work)
• salary sacrifice
#2 Employment and Tax Conditions
Employment Basis
Another STP Phase 2 requirement is to report on the employment basis of each individual according to their work type.
Work type categories include:
• Full time (F)
• Part-time (P)
• Casual (C)
• Labour Hire (L)
• Voluntary agreement (V)
• Death beneficiary (D)
• Non-employee (N) (superannuation only)
Tax Treatment
The STP Phase 2 report will include a 6-character tax treatment code for each individual.
Reporting this information through the STP report means Tax File Number Declaration (TFN) forms will no longer be required to be lodged with the ATO.
Your payroll DSP will automate the reporting of these codes in the STP report.
#3 Income Types
Amounts paid to individuals will now need to be assigned to an income type.
Your payroll software provider should provide you with instructions to determine the correct income type disclosure.
#4 Country code
A country code must be reported where payments are made to individuals with the following income types:
• Foreign employment income (FEI)
• Inbound assignees to Australia (IAA)
• Working holidaymaker (WHM)
#5 Child Support Garnishees and Child Support Deductions
Reporting of this information is optional and may not be adopted by all payroll software providers.
By reporting this information, it will reduce the need to give separate remittance advice to the Child Support Registrar.
#6 Reporting previous Business Management Software IDs and Payroll IDs
This option may be available in your STP report and can be used where you have changed your business structure or changed software and have difficulty finalising previous records.
Providing this information to the ATO will help to reduce and fix issues with duplicate reporting of income statements for employees in ATO online services.
What Remains the Same?
Whilst additional reporting is required with STP Phase 2, there are quite a few things that will remain the same. These include:
• the way STP is lodged
• the due date for lodgement
• the types of payments that are needed
• tax and super obligations
• end of year finalisation requirements
Please contact us to find out more about the new STP Phase 2 requirements. The team at EMspire Advisory are experienced accountants, bookkeepers and tax agents in Sydney and would like to help you create, grow and succeed in business.
Please note that this information is not specific and is general in nature and cannot be relied upon as advice. Please contact us for specific advice for you and your circumstances.