Single Touch Payroll (STP) is an Australian Government initiative designed to streamline payroll reporting to various government agencies and reduce compliance requirements for employers. STP Phase 1 has been rolled out and mandatory reporting has been underway for all employers for some time.

STP Phase 2 is now being rolled out with mandatory reporting required from 1 January 2022, however not all software suppliers were ready for the 1 January deadline and have been granted a deferral from the ATO, which applies to all users. The deferral deadlines are now looming and the software companies are starting to implement the changes to their systems for you to correctly report your payroll. If you use Xero your start date has been deferred until 31 March 2023 and MYOB users start date has been deferred until 1 January 2023.

Gradual changes have been announced to payroll reporting through STP. All businesses that make payroll payments will need to be compliant with the new reporting.

Main changes that will be introduced throughout Phase 2 are:

Tax File Number Declaration will be incorporated into STP reporting eliminating the need of filing the declaration separately.
Update of various income types that will match to the specific tax consequences.
Introduction of termination reasons into the pay run which will eliminate the need of providing a separate separation certificate to the employees.
Separation of allowances from gross earnings so that they can be reported individually.
Introduction of Directors Fees as a separate pay item.
Introduction of the new lump sum payment called “Lump Sum W”.
Separation of Bonuses and Commissions so that they can be reported individually.
Breakdown of the Lump Sum E back payments into financial years eliminating the need of a separate letter.
Reporting of separate tax codes for each employee to correctly withhold taxes based on different circumstances.

Phase 2 will include 3 stages:

Stage 1: employee details update
Stage 2: reclassification of existing and new pay items
Stage 3: breakdown of Paid Leave into subcategories

Stage 1 – Employee Transition

Stage 1 is currently underway and will require an update of each employee details to revise below parts of their profiles:

Employment Type
Income Type
Employment Basis
Tax Scale

Employment type specifies if the employee is an employee or a contractor.

Income type introduces additional pay classifications to correctly declare main type of income received by the employee such as:

Salary and Wages
Closely Held Employee
Working Holiday Maker
Non-Employee
Labour Hire

Employment basis establishes whether an employee works on full time, part time or casual basis.

Tax scale determines individual tax rate to be applied to each pay by introducing below categories:

Regular
Actors, variety artists and other entertainers
Horticulturalists and shearers
Seniors and pensioners

Stage 2 – Pay Items Transition

Stage 2 is coming soon and will require to identify and replace non-compliant pay items with new categories that are supported by Phase 2. More information will be released when available.

Stage 3 – Leave Categories

Stage 3 is coming soon and will expect to introduce subcategories to the existing Paid Leave payroll items. More information will be released when available.

Xero has secured a deferral for compliance of Phase 2 for all of their customers until 31 March 2023 and MYOB until 1 January 2023. This deferral is applied to all businesses that make payroll payments by default and no further action is required in respect of requesting a deferral. However we recommend that you take steps now to update your payroll information to comply with the reporting requirements of STP 2 Stage 1.

Xero clients can click here to follow the checklist instructions to complete Stage 1.

MYOB clients can click here to follow the instructions to complete Stage 1.

For clients that do not use Xero or MYOB to report payroll items, please refer to your software instructions or refer to ATO guidelines here.

If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.

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Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.