What is Single Touch Payroll (STP) Phase 2?
In the 2019-20 Budget, the Federal Governed announced that they would be expanding Single Touch Payroll (STP).
This expansion, known as STP Phase 2, aims to reduce the reporting burden on employers that need to report information about their employees to multiple government agencies.
STP Phase 2 will also help Services Australia issue the correct payment to their customers who may also be your employees.
The scheme officially begins on 1 January 2022. However, all Payroo users have an extension until 30 June 2022.
What is the new data being shared?
The ATO is looking to patch knowledge gaps in the payroll submission process and get a better understanding of employee payment details.
So, in addition to the payroll and employee data you’re already sharing through STP Phase 1 (salaries, PAYG, superannuation), Phase 2 will involve the capture of the following new fields:
child support deductions
Under STP phase 2 you will also be required to separately itemise the components which make up the gross amount. You will need to report all allowances separately, not just expense allowances that may have been deductible on your employee’s individual income tax return.
What isn't changing under STP Phase 2?
While you need to report more information about your employees, your existing reporting and payroll processes will stay the same.
The following will not change under STP Phase 2:
the way you report
reporting due dates
the types of payments you make
tax and super obligations
EOFY reporting and finalisation requirements
Key Changes in STP Phase 2
We've summarised some of the main changes to STP reporting that will impact businesses below:
A reason for termination will be mandatory when an employee finishes their employment. Previously, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO and so takes away the need for an employment separation certificate to be issued to the employee altogether.
Child support garnishee / deduction amount
Previously, an employer had to submit a deduction report to the relevant child support agency when they deduct the child support from an employee's pay. Phase 2 will allow employers to report child support deductions/garnishees via pay events thus removing the need to report separately on a monthly basis. This will initially be voluntary reporting and if employers do not choose to report via STP they will need to continue to report monthly as per the existing processes.
Disaggregation of gross
Previously, the gross amount you reported contained different types of amounts depending on the particular income type. With phase 2, components of gross earnings will now be itemised separately, with all payment types being reported consistently for each income type - this is to streamline the different income assessments required by government agencies.
Income stream collection
Employers will now need to classify the payments made to an employee following an ATO term called “Income stream collection” when they submit their STP report to the ATO. This includes income type, payment type and may also include a country code (for specific income types).
Tax file number declaration
Previously, employers were required to submit a tax file number declaration to the ATO detailing the tax information for new employees and any existing employees where their tax situation changes. Phase 2 will incorporate employee tax information via STP reporting, thus eliminating the need to submit tax file declarations to the ATO as a separate process.
Tax treatment codes
Previously, employee tax information was part of the tax file number declaration. Phase 2 will introduce a 6 character tax treatment code to indicate what PAYG tax scales and other components were applied to the employee to determine withholding amount. This is something the payroll software vendor will have to change in their system for STP reporting rather than a new process for employers.
Lump-sum E letters
At present, employers are required to provide lump sum E letters to employees each financial year. The STP changes will mean that this information will be included in the pay event prior to finalisation of the payee Income Statement and so will take away the need for the employer to provide the lump sum E letter altogether.
Transitioning employees from another payroll system
Businesses transitioning from one payroll system to another will be able to enter the previous BMS ID/payee IDs in the new system and then proceed to use the new system’s BMS ID/payee ID. The ATO will link the information so that there is only one income statement reported for each employee. This replaces the need for manual adjustments to ensure employee YTD earnings are not overstated.
Paid leave will no longer be incorporated as part of gross earnings when reporting earnings via STP. Rather, paid leave will be reported using itemised leave type codes.
Additional allowance type codes will be added to meet the new reporting requirements. This will allow the ATO to assist the employee when completing their IITR.