Single Touch Payroll Phase 2 is coming.

Here’s what you needs to know...

By now, the majority of small businesses and advisors would consider themselves well-versed in Single Touch Payroll. Everyone has done a great job getting STP up and running, and there is now more to come as the ATO initiative progresses.

The program is being rolled out in stages so it is easier to manage and this next phase is the natural expansion of the STP you’re used to. This means there are a few more changes on the horizon as we get ready to say hello to STP Phase 2.

So, when does it begin? The mandatory start date for Phase 2 reporting is 1 January 2022.

Xero has secured a 12-month deferral for all partners and customers until 31 December 2022 and they have advised that they are working closely with the ATO to roll out the Phase 2 changes in Xero Payroll. So for Xero users - this means there’s nothing you need to do just yet – and when there is, we’ll make sure you’re prepared.  Xero has advised that it will communicate as soon as these changes are available so everyone is prepared throughout the transition. Just like with phase one, the Xero team is working to make the entire process as simple as possible.

MYOB  has advised "we are currently working on the necessary changes required for Single Touch Payroll Phase 2 within our products. As we know 1st January is not an ideal time for changes (thanks Australian Government), so we are trying to work ahead of the curve to allow for an easier transition and communicate those changes to users well ahead of the changes. At this time, we don't have any roadmaps or plans that we can announce, however, it is something that is being worked on.  In saying that, our AccountRight 2021.5 update has been released to get users started on that process. Help Article: Getting ready for STP Phase 2 - ARL has more information on what can be done to get started with regards to STP Phase at this stage."

Quickbooks - during a Quickbooks Pro Hour video, it was advised that QBO would be ready to roll out STP Phase 2 by the start date of 1 January 2022 and would not need to ask for a deferral, however there is yet to be anything official provided in writing so - watch this space!

If this is the first time you’re hearing about the coming changes or if you’re still not quite sure what they mean, we’ve mapped out everything you need to know right now.

What exactly is STP Phase 2 and how is it different from phase one?

This is the next stop on the STP journey. Where phase one was a way of reporting employees’ tax and super to the ATO, STP Phase 2 expands the program to capture more information. This will reduce the compliance burden for employers and individuals, and help the admin side of things for social support services – think Centrelink. When you do interact with government services, these changes will make that process easier.

So, what new information will be included?

Under STP Phase 2, you will be required to report additional information to the ATO under a few new areas. The main ones to be aware of relate to the following:

• 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 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.

• 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.

• 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.

• 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: Where before income was classified under one label, in Phase 2 each amount paid to an employee will now be assigned to an income type. These include salary and wages, closely held payees (e.g. family members), working holiday makers, and labour hire, among others.

  • Country code: You will have to include a country code for employees who report to tax jurisdictions outside of Australia. This is most relevant for businesses with staff on certain visas (like working holiday) as you will need to provide their home country.

  • Disaggregation of gross: Currently, STP reports include a gross (total) amount which is the sum of a number of payment types. This will now be broken into more detail to include: allowances (all must be separate); bonuses and commissions; directors’ fees; overtime; paid leave; salary sacrifice. Paid leave will also be categorised using leave type codes.

• Salary sacrifice: Since these contributions can no longer be used to reduce ordinary earnings or count towards superannuation obligations, they need to be separately reported in STP. You can no longer report the post-sacrificed amount via payroll.

• Lump sum E payments: This is used when you make lump sum payments for back pay from previous income years. Previously, it was shown on a separate line item in an employees’ payment summary. In Phase 2 it must be included in STP reports before finalising an employees’ records. This will remove the need to provide employees with Lump Sum E letters.

You can find the full details on the ATO site.

What do these changes mean for my business?

Although you will need to provide the ATO with more information, the way you submit STP won’t change. Ultimately, the impact of STP Phase 2 will differ based on the unique qualities of your business and employees. We’ll keep you updated on any changes that need to be made.

What do I need to do right now?

Nothing just yet. It’s a challenging time for small businesses – and we know you have a lot to focus on. We just wanted to keep you updated on upcoming changes.