There is a key change affecting how your employees’ pay information is reported to the ATO. Your payroll software will need to be reviewed and settings for employees updated.
Being STP Phase 2 ready is required by 31 March 2023. We are letting you know about this now, so you can either adjust your payroll settings yourself or receive our assistance.
WHAT IS STP PHASE 2?
In the 2019–20 Federal Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information.
Under Single Touch Payroll Phase 2, the Australian Government will require all employers to report additional information through STP on or before each payday. This information will include details such as income or payment type and the reason for any cessation of employment.
These STP changes are intended to benefit both employers and employees – especially with streamlining things at tax time each year so employees have the correct information and can receive any tax refunds faster.
Australian businesses that have employees on their payroll will be impacted by this change.
STP PHASE 2 CHANGES
Under STP Phase 2, you need to report additional information to the ATO using your payroll software. The main changes are:
Tax File Number Declaration
Employers are currently required to submit a tax file number declaration to the ATO. STP Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.
Specifying a reason for termination will be mandatory when an employee finishes their employment.
Currently, an employer may be asked to provide an employee with an employment separation certificate, but STP Phase 2 will require the reason for termination to be included in the STP report sent to the ATO.
Paid leave won't be included as part of gross earnings when reporting earnings via STP. You will still need to report leave payments made to your employees in your STP report.
In STP Phase 1 reporting, some allowances are reported separately, but others are reported as part of gross.
All allowances will now need to be reported separately in your STP Phase 2 report across most income types. This means allowances previously reported as gross must now be separately itemised and reported.
If you pay directors’ fees, you must separately include these in your STP Phase 2 report.
Directors’ fees include payments to:
The director of a company;
A person who performs the duties of a director of the company; or
A member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated.
Bonuses and Commissions
There might be times when you pay employees bonus and commission payments, which are typically paid as a lump sum. Previously they were reported as part of gross payments, but for STP Phase 2 they will be reported separately.
Other less common changes include the way this information is reported:
Income type and country codes
Lump Sum W (Return to Work) payments
Tax Treatment Codes
Lum Sum E (back pay from prior income years) payments
Businesses are required to be STP Phase 2 ready by 31 March 2023. Please contact the office if you have any queries or concerns, or would like assistance in ensuring your payroll software is STEP Phase 2 ready.