Recently I’ve had a couple of queries in relation to STP Phase 2, so thought it’d be worthwhile to address them for you all, to summarise just what STP Phase 2 is, what changes it brings, what things won’t change, and what you have to do about it.
What is Single Touch Payroll Phase 2?
In the 2019-20 Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information.
The expansion of STP, or STP Phase 2, significantly increases the data required 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.
When Does STP Phase 2 Start?
The mandatory start date for Phase 2 reporting was 1 January 2022.
Hang on – 1 January?!?!! But it’s the 19th of January now, and you haven’t told me anything before now!
Yes, absolutely correct. Two reasons why:
First; 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. So 1 January really means 1 March.
And the second; just like with STP Phase 1, the ATO allows Payroll Software Providers (such as Xero) to apply for a deferral to allow for additional time to make the changes required, and update their software and systems for the changes. Xero did that prior to the end of 2021, and in fact, secured a 12 month deferral to 31 December 2022 from STP Phase 2 for all users. All users of Xero were automatically included by Xero in the deferral; there was no opt-in (or opt out) process; essentially you have the extension because Xero has.
So, as a Xero payroll user, 1 January 2022 actually means 1 January 2023. Xero also says that we’re working closely with the ATO to roll out the Phase 2 changes in Xero Payroll. This means there’s nothing you need to do just yet, and when there is, we’ll make sure you’re prepared.
What Additional Information Does STP Phase 2 Include?
As I said at the outset, STP Phase 2 significantly 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.
The inclusion of salary sacrifice amounts reduced the gross earnings reported under STP Phase 1, whereas these will now be captured under STP Phase 2. 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:
- Tax file number declaration: Currently, these declarations capture details on employment type (full time, part time or casual) and different tax factors that influence PAYG withholding, like a HELP debt, as well as the TFN itself. This also includes information about the tax treatment of employees (applicable tax scale, options within tax scale, STSL status, Medicare Levy options, tax variation, etc). This will all be included in your STP report via an automated six-character tax treatment code for each employee and means TFN declarations will no longer need to be sent to the ATO after collection.
- Employment basis: Previously optional, it will become mandatory to report an employee’s work type. This includes full-time, part-time or casual, along with new categories like labour hire, volunteer agreement or non-employee.
- Termination reason: The reason why someone leaves a business will need to be provided in your STP report, such as if it was voluntary or a redundancy. This means no more employee separation certificates.
- Income stream collection: Phase 2 will require employers to break down payments into more detail under a new grouping called income stream collection. This has three main areas – Income types, Country Code and Disaggregation of gross
What Isn’t Changing?
Importantly, the way you lodge STP data and the due dates of when you have to lodge STP data, including the end of year finalisation data, does not change. This will still be done from within Xero, after processing your pay run. It will still be the 3 clicks of the mouse to file this information with the ATO.
The way you pay your employees, pay PAYG Withholding Tax and pay superannuation does not change.
And the requirement to prepare and lodge Activity Statements does not change.
Summary
For now, sit back and relax knowing that there’s nothing you need to do, and you won’t be subject to any penalties for not currently reporting STP Phase 2 information.
Xero has stated that they are working closely with the ATO to upgrade their payroll to capture all STP Phase 2 information. Both Xero and I will communicate with you as soon as these changes are available so you’re prepared throughout the transition. Just like with phase one, Xero is working to make the entire process as simple as possible.
More Info
If you have any questions about Single Touch Payroll Phase 2, or Xero’s deferral arrangement, please don’t hesitate to get in touch. For additional reading and information:
