Single Touch Payroll (STP) Phase 2 – prepare now

Single Touch Payroll (STP) Phase 2 is ready to roll, but are you?

First legislated in 2016, STP rolled out progressively to employers from 2018. So, all employers have been required to use STP for some time now.

What is Single Touch Payroll

The aim of STP is to streamline reporting, therefore easing the burden for employers who needed to report to multiple government agencies.

The system was introduced with STP Phase 1, requiring only basic income, tax, superannuation and dates to be reported via STP.

What is STP Phase 2

Now we have the next step in the evolution of STP. It expands on the data required to be reported by employers, on or before each payday. The digitisation of reporting from Australian businesses to government agencies also assists in ensuring that the Services Australia customers who you may employ get the right payments at the right time.

STP Phase 2 commenced on 1 January 2022 but, as most small business payroll software providers were not ready, the ATO granted extensions, including:

XERO: 31^st March 2023

MYOB: 31^st December 2022 (for small business customers only)

Key changes introduced in STP Phase 2

Key changes to reporting requirements include:

• Income types
• Employment basis codes
• Reporting by country code
• Allowance payments
• Overtime
• Directors Fees
• Salary sacrifice amounts
• Lump sum E & W payments
• Paid leave
• Cessation reasons

Why the extra reporting data?

Various laws treat different components of pay differently. For example, overtime is treated differently for superannuation guarantee purposes, and some kinds of leave are treated differently by Services Australia when determining an individual’s entitlements within the social security system. The components can be better assessed and treated correctly by breaking down and reporting these income types separately.

Benefits of STP Phase 2

Employers will no longer need to:

1. Send Tax File Number Declaration forms to the ATO
2. Prepare monthly child support deductions reports and submissions
3. Prepare Employee Separation Certificates
4. Prepare Lump Sum E payment letters
5. Prepare and lodge employee payment summaries or annual report with the ATO

Employees will benefit from:

1. Reduced employment income related debts (e.g., pensions, JobSeeker, parenting payments, education allowances)
2. Improved accuracy and timeliness of payments
3. Reduced effort and error in calculating and reporting income for the purposes of income support payments

Prepare your payroll

Xero customers

Xero is releasing a four-step process to make sure all users are STP Phase 2 compliant. You can find this in Single Touch Payroll under the Payroll menu. So far, step 1 is released and ready for you to complete now, while steps 2 – 4 will be released in the coming months.

Step 1. Update Employee Profiles

Step 2. Replace Pay Items

Step 3. Assign Leave Categories

Step 4. Begin filing pay runs with STP Phase 2 when switched on.

Learn more: Xero’s STP Phase 2 steps for success

MYOB customers

MYOB have released a six-step process for transitioning to STP Phase 2. This is release and ready for you to complete now.

1. Register for training and resources
2. Update employment basis
3. Update income type and country of origin
4. Update ATO reporting categories – these have been expanded into more specific categories to assign to pay items
5. Complete the in-product readiness check
6. Begin STP Phase 2 Reporting

Learn more: MYOB’s STP Phase 2 getting ready

What next?

Keep an eye out for updates from your payroll software provider as new features are rolled out to assist with the transition.

The ATO also has a good checklist to help prepare for the next steps.

Contact your Synectic adviser if you would like further guidance setting up for STP.

About the author