Before Single Touch Payroll (STP) Phase 2 commences, here are some key points to help you prepare for the changes.
What's not changing?
- The way you lodge pay and update events
- The due date for lodging events
- The types of payments that are needed
- Tax and super obligations
- End of financial year finalisation event requirements
What is changing?
The biggest change brought about by STP Phase 2 is additional reporting requirements of employee and earnings data, so data regarding employer and employee interactions between the ATO and other government agencies are more streamlined, and admin tasks associated with hiring and terminating employees is reduced.
Here are the key reporting changes:
- Disaggregation of gross income amounts
- Employment and taxation conditions
- Child support garnishees/deductions
- Income types and country codes
Disaggregation of gross income amounts
In Phase 1 of STP, Year-to-date gross income amounts were reported to the ATO via pay and update events. Phase 2 extends the use of this data to other government agencies such as the Department of Social Services, Services Australia (Child Support and Centrelink), and the Department of Veterans' Affairs.
Because these agencies assess income differently, the disaggregation (separate itemisation) of gross income amounts will provide more accurate and relevant employment income information to them. Also, social services agencies have specific fortnightly instalment periods whereby applicants must declare their income and period that welfare payments are made. This change will increase accuracy and ensure they receive the right payment at the right time.
The following components of gross earnings will be disaggregated:
- Bonuses and commissions
- Directors' fees
- Paid leave
- Salary sacrifice - In Phase 1, salary sacrifice amounts were not required to be reported. Now in Phase 2, it is a requirement, and the gross amount reported will be the pre-sacrificed amount.
Employment and taxation conditions
The following information will be required to be reported in STP Phase 2:
- Employee commencement date (already reported in Phase 1)
- Employee termination date (already reported in Phase 1)
- Employment basis (new requirement)
- Termination reason (new requirement)
- Tax treatment (new requirement)
This means employers will no longer need to send TFN Declarations to the ATO or provide employment separation certificates when an employee ceases employment, as this information will now be submitted through STP instead.
- New employees will still need to complete a TFN declaration and the employer must retain this for their records. They will not have to lodge/post/upload the declaration to the ATO.
- Existing employees do not need to complete new TFN declarations to start reporting through Phase 2.
Child support garnishees/deductions
STP Phase 2 has introduced the ability to report on child support garnishees and deductions through STP. Reporting through STP will remove the need for employers to provide separate remittance advice to the Child Support Registrar. However, you must still pay the required amounts directly to them by the date specified in your notice.
Please note that reporting on child support through STP is voluntary. If you choose to not report through STP then there is no preparation required to be Phase 2 ready in this area. To be clear though, employers will still need to report directly to the Child Support Registrar on an ongoing basis.
If you do choose to report child support deductions and garnishees through STP, you will need to assign the applicable child support classification against the relevant child support deduction category.
Income types and country codes
Another new requirement being introduced in Phase 2 is reporting an income type for each payment made to an employee and, in some cases, a country code alongside that income type.
The 3 main drivers of reporting income types and country codes are as follows:
- To identify amounts with specific tax consequences and/or mapping to a specific part of an individual's income tax return.
- To easily identify any payers choosing to claim an STP reporting concession, such as a reporting concession for closely held payees, which avoids the ATO unnecessarily contacting the payer to follow up with them.
- Clarifies the employer's reporting obligations with respect to foreign tax and whether there are any applicable tax treaties in place with a foreign country.
Do I need to do anything before lodging STP Phase 2 events?
Once you've set up your payroll and before you begin lodging pay events under STP Phase 2, please ensure you have created and lodged an Update Event so the ATO can validate the data that will be transitioned over to STP Phase 2.
Content sourced from Employment Hero