Four Things Every Employer Should Know About STP Phase 2

The expansion of Single Touch Payroll (STP2 / STP Phase 2), significantly increases the amount of payroll information that needs to be reported to the ATO. It is hoped that this additional reporting will assist in ensuring employees are paid correctly as well as reducing the need for employers to report information about employees to multiple government agencies.

1. When does this take effect?

The mandatory start date for Phase 2 reporting is 1 January 2022, however, the ATO has advised that employers who provide the additional reporting required under Phase 2 by 1 March 2022 will be accepted as having met the deadline.

Digital service providers such as MYOB and Xero have already applied for deferrals as they need more time to make changes and update their solutions.

For MYOB customers, the software provider has secured deferrals for its customers, extending the compliance deadline by 12 months to 1 January 2023.

Xero have advised that they have been granted a deferral until 31 December 2022. This means that all customers (existing and new) using Xero Payroll will also have until that date to report their first STP Phase 2 pay run, instead of the 1 January 2022 ATO deadline.

For further information on deferrals for other digital service providers, please reach out to your software provider or discuss with us.

For businesses that need more time to transition, you may apply for an extension beyond your software provider’s deferral. Please discuss with us if you need assistance.

2. What does STP Phase 2 include?

STP Phase 2 expands the data being collected each pay period. Most significantly, there is now a requirement to separate the components of gross earnings to assist employees with their tax return deductions. This will also assist Services Australia in identifying different types of income for the purposes of administering their programs.

The additional data will provide information to allow the ATO to validate PAYG Withholding amounts and estimate superannuation guarantee amounts to assist in ensuring employers meet their obligations.

Gross earnings components that will now need to be itemised separately include:

  • Allowances (sorted into specific categories)
  • Paid leave (classified by specific leave types)
  • Overtime
  • Bonuses and commissions
  • Directors’ fees
  • Lump sum payments and employee termination payments (classified by type)
  • Salary sacrifice and deduction amounts (sorted into specific categories).

Remaining amounts not falling into one of the above categories will be reported as separate items.

Previously, the inclusion of salary sacrifice amounts reduced the gross earnings reported under STP Phase 1. These will now be captured under STP Phase 2 separately. Likewise, certain allowances reported separately under STP Phase 1 will be reported in greater detail under Phase 2 and give more insight into payments being made to employees.

Other data captured in STP Phase 2 includes:

  • Employee’s basis of employment (full time, part time, casual, labour hire, non-employee).
  • Tax treatment of employee (applicable tax scale, options within tax scale, STSL status, Medicare Levy options, tax variation).
  • Reason for an employee’s termination (voluntary cessation, redundancy, dismissal, contract cessation, transfer, ill health or death).
  • Income type and country codes (closely held payees, inbound assignees, working holiday makers, Australian residents working overseas, labour hire).

3. What remains the same?

  • Tax and superannuation obligations do not change.
  • The types of payments required to be made do not change.
  • The way you lodge STP data and the due dates do not change, including end of year finalisation events.
  • The requirement to prepare and lodge Activity Statements (where applicable).

4. What do I need to do to prepare for STP Phase 2?

Step 1 – Familiarise yourself with STP2 requirements – You could check the ATO Single Touch Payroll Phase 2 employer reporting guidelines here.

Step 2 – Confirm your compliance deadline.  The ATO has indicated anyone not reporting in STP Phase 2 by 1 March 2022 will require a deferral.

Please note that anyone using MYOB or Xero payroll solutions will already have automatic deferrals in place as mentioned above.

Step 3 – Prepare an implementing plan that will step you towards your compliance deadline.

  • Your payroll information meets the new requirements. This includes updating some employee details and your payroll setup to comply with the ATO reporting requirements.
    • Employment Type – Reporting of employment type will be mandated under Phase 2 reporting. Businesses will need to declare whether their employees are full-time, part-time or casual, in addition to new categories such as labour hire or volunteer.
    • Disaggregation of Gross – Income will no longer be reported as a gross sum, instead each component must be itemised including salary sacrifice, overtime, paid leave, bonuses, commissions, director’s fees and allowances (allowances must also be individually itemised).
    • Country Codes – If you have Australian resident employees working overseas, businesses will need to provide details of the host country.
  • Your software will need upgrading. MYOB and Xero will be updating their software in advance of these changes

Our business advisers understand STP reporting requirements and can help you successfully navigate and benefit from these changes.

Should you need any assistance with transitioning to STP Phase 2, please do get in touch with one of our team members to discuss further.

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