Single Touch Payroll Phase 2: challenges and benefits
In case you missed it, the deadline by which businesses in Australia will be required to comply with requirements of phase 2 of the Australian Taxation Office’s Single Touch Payroll Phase 2 (STP P2) has been deferred to 1 March 2022.
So, while this gives your business a better chance to get it right, it is an acceptance by the ATO that STP P2 compliance is no easy task for most businesses which are already juggling the complexities of the COVID 19 pandemic and that the initial set up and activation of the STP P2, for most, will be arduous and time consuming.
Clearly, rushing won’t help anyone, including the ATO who are aiming to achieve a $2.1 billion budget saving over 5 years. So given the breathing space after these two tumultuous years, this is a chance to get this right.
Why are we doing this again? - The gain from the pain of STP P2
There will be some pain with the implementation of STP P2. The gain, however, will be a streamlining of employer interactions with the ATO: employers will no longer need to send employees’ tax file number declarations to the ATO and report Lump Sum E payments to employees.
According to Services Australia — which is responsible for Centrelink, Medicare and child support — recipients of its payments will benefit because it will use information gained from STP P2 to streamline the processing of customers’ benefit claims. Recipients will need to provide less documentation, and Services Australia will have less need to contract them to gather and verify details. A win for your employees!
That’s the good news – and now for the heaving lifting…
STP P2 does represent a considerable expansion of information employers are required to lodge with the ATO from STP P1. STP P1 required, in summary, employers to use payroll software able to report payments to employees and directors for salaries and fees and for return to work, termination, unused leave, parental leave.
STP P2 requires the following data in your STP payroll file. The ATO is looking to payroll software providers to support business capture and send the data every pay period:
Disaggregation of the gross the amount paid to your employees. Because payments are treated differently for social security purposes, the ATO is looking for break down the gross amount.
Employment and taxation conditions: Employers manage and report employee information in multiple ways: information about the basis of employment; information on their TFN declaration; information on when and why they leave. This information will be included in STP2, a move the ATO says will streamline lodgement.
Income types: The ATO lists almost a dozen different payment types to employees, for example closely-held payees (people related to the employer) and working holiday makers. Each payment type must be identified with the correct three letter code under STP2.
Country codes will be needed to identify the location of an Australian resident working overseas who receives payment.
Child support garnishees and child support deductions: Reporting of these payments is optional under STP2 but using it will remove the need to report such payments to the Child Support Registrar.
While the deferral date of March 1 2022 seems like next year’s problem, it’s a good idea to get your head around the changes and what steps you’ll need to take to ensure you are STP Phase 2 compliant.
This blog series and our STP Phase 2 Resources page will be available to help you on this journey.