What is Single Touch Payroll?

Single Touch Payroll (STP) is a change in how the Australian Government required employers to report payroll information to the Australian Taxation Office (ATO) to make reporting easier across government agencies. Businesses with over 20 employees started reporting via STP on 1 July 2018, while companies with 19 or below employees commenced on 1 July 2019.

With STP, payroll information such as salaries and wages, pay as you go (PAYG) withholding and superannuation are sent immediately to ATO through STP-enabled software. There would be no need for annual payment summaries since businesses submit reports at every pay. By the end of the financial year, employers need to ensure that the information is finalised and complete so that the ATO can include this in the individual’s tax return.

What is its impact on the business?

Digitising processes streamlines payroll tax reporting for businesses. Before STP, the ATO does not see any payroll data until the end of the fiscal year. By obtaining information more frequently, the Commissioner will respond to, or take action against, any non-compliance closer to real-time than is currently possible. This includes people claiming general exemption at more than one job or people paying unusual amounts of tax without specific orders to do so.

The ATO could also share information with other Government Departments to ensure everyone is paying and receiving their correct obligations and entitlements.

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How are STP data reported?

Using a payroll or accounting solution that is STP-enabled

Third-party reporting, through a registered tax or BAS agent or a payroll service provider using STP-enabled software

For micro-employers (1-4 employees), there are no-cost or low-cost solutions available

Depending on the employer’s situation, they can request to defer STP compliance with the ATO for more time before they start reporting, get an exemption for certain employees from certain payments, or apply for other exemptions.

Businesses may stop submitting STP reports if they no longer have employees, have ceased trading, have changed their structure, are not paying employees for the rest of the year, or have paused due to COVID-19. For these situations, the ATO has provided guidelines to allow the business to cease reporting.

Single Touch Payroll Phase 2

The second phase of Single Touch Payroll is all about streamlining the reports to make it easier for employers to provide specific pay details to their employees. STP Phase 2 introduces new data type reporting, such as Country Income, Salary Sacrifice, Bonuses and Commissions, Overtime, Directors’ Fees, Paid Leaves and Deductions.

These report enhancements support the Whole-of-Government approach, where various government agencies besides the ATO can request access to payroll data for their processes. The first agencies to get access are the Child Support Agency (CSA), Department of Social Services (DSS), Department of Human Services (DHS) and Department of Veteran Affairs (DVA), with child support payments to be included in STP reporting.

Now that the legislation is in place, what’s next?

New Data Type Reporting

The first phase of STP reporting included high-level data such as Gross, Tax, Allowances, Deductions, Lump Sums and Fringe Benefits. The next phase sees the reports moving away from Payment Summary Annual Rules (PSAR) and Payment Summaries for allowances and deductions to “Income Types.” This presents a change in the structure of the XML file that payroll providers had previously mapped, to provide a more robust model to adapt to the new report.

Other payments will likely be separately reported as well, to include a more detailed data reporting: Country Income, Salary Sacrifice, Bonuses and Commissions, Overtime, Directors’ Fees, Paid Leave (including Leave Payment Type and OTE status), and Deductions (including Type, Amount and Variation Reason). Reportable Fringe Benefits will see some changes, too; where instead of reporting the RFBA Taxable Amount and the RBFA Exempt Amount, ATO will require RFBA Exemption Status and RFBA Amount.

These changes may mean reworking some rules written to cater to Phase 1 requirements, and employers will need to champion their data and team up with their payroll providers to simplify and streamline their STP Phase 2 journey.

Whole of Government

The report enhancements and improvements in Phase 2 is to set up the Whole-of-Government approach. Besides the ATO, different government agencies may now request access to the payroll data submitted for use in their own processes. Agencies who will get first access are Child Support Agency (CSA), Department of Social Services (DSS), Department of Human Services (DHS), and Department of Veterans Affairs (DVA), with child support payments set to be included in STP reporting by 1 July 2021.

This means that payroll data submitted via STP may now affect the decisions made by these government agencies in delivering their services. As such, data accuracy and integrity are now even more important, with its potential to affect the rest of the country.

What to expect

The ATO will be providing more information to payroll providers and employers in the next months, including a draft data structure, schema and validation rules. A new version of the Business Implementation Guide (BIG) is targeted for release by January 2020, followed by a BIG review by June 2020. Early preparation and knowledge is key as we enter this new phase in the legislation, so keep informed by watching out for ATO updates, subscribing to The Association of Payroll Specialist (TAPS) newsletter, communicating regularly with your payroll providers. STP Phase 2 is expected to go live by 1 July 2021.

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