What is a Closely Held Employee?
A closely held employee is one who is not "at arm’s length". This means they are directly related to the entity from which they receive payments. Examples include:
- family members of a family business
- directors or shareholders of a company
- beneficiaries of a trust
The ATO has allowed a later reporting start date for any eligible business with closely held employees. Specifically, you will not need to report closely held employees through STP until 1 July 2021.
To clarify, this does not mean you are exempt from STP reporting altogether. You must still report all other employees through STP commencing from the first pay run with a pay date on or after 1 July 2019. If you have been granted a deferral date from the ATO then you would commence reporting from such deferred start date.
Learn how to report STP events for closely held employees here: Lodge Single Touch Payroll (STP) events for closely held employees.
If you are unsure of whether any employee in your business is deemed a closely held employee, you can reach out to the ATO.
How to set up a Closely Held Employee
The steps undertaken to classify an employee as closely held is as follows:
- Select Payroll from the left hand menu
- Select the employees name
- Select Pay Run Defaults from the left hand menu
- Scroll to the bottom of the page tick the checkbox for Closely-held employee
- Select Save
Once the checkbox is ticked for an employee, the employee will not appear in STP events created thereafter.
Dealing with scenarios where employees have incorrectly been marked as closely held or an employer has forgotten to classify an employee as closely held
If an employee has incorrectly been classified as a closely held employee, follow these steps to correct the issue:
- Deselect the closely held employee checkbox (from the employee's Pay Run Defaults page) and select Save;
- Create and lodge an Update Event. This will include the incorrectly classified employee in the event and ensure they are being reported.
- Pay event lodgements thereafter will automatically include the employee if they were paid.
If an employee has not been classified as a closely held employee (and should have been), and as a result, has been reported to the ATO through STP you will need to get in contact with the ATO to rectify this as the reversal of events are not catered for with the ATO.
To ensure subsequent events do not include the closely held employee, ensure you follow the instructions for Setting up a Closely Held Employee outlined above.
We have Closely Held Employees but still, want to report them through STP. Can we do this?
Closely Held Employees & Payment Summaries
For eligible businesses not reporting closely held employees through STP for the 19/20 financial year, you will need to provide those employees with a payment summary and a payment summary annual report must also be lodged with the ATO. This must only be done for closely held employees not reported through STP. Do not include STP reported employees as you will be over reporting payroll data to the ATO.
Content sourced from Employment Hero