How Single Touch Payroll (STP) Phase 2 is beneficial for you and your clients

What is STP Phase 2?

When initial phase of the Single Touch Payroll (STP) was introduced, companies started adopting the system steadily and subsequently filling payroll information has become much easier for employers and in turn, collecting essential information has been easier for the Australian Tax Office. From 2018, the STP system became mandatory for larger companies and from 2019 the STP system became mandatory for smaller companies as well.

In the 2019-20 budget, the Government announced that STP Phase 2 would be rolled out providing additional benefits.

The STP Phase 2, will eliminate the reporting burden for employers who need to report information about their employees to multiple government agencies. It will also help customers of Services Australia who may be your employees, get the right payment at the right time.

The mandatory start date for Phase 2 reporting is 1 January 2022.

It was easier for Australian companies to submit their payroll information to the Australian Tax Office through the first phase. The STP enabled system, enabled the employers to automatically send payroll data to the ATO as they file their payroll information on their own internal system. STP streamlines the process removing the need to file additional reports at the end of each tax year. In the STP 1st phase rollout, the STP reports unified information such as salaries and wages, super liability information, tax, pay as you go (PAYG) withholding, and superannuation automatically. The second phase demands more additional information from companies.

How flexible is the transition?

The Australian Taxation Office adopts a flexible, reasonable and practical approach towards STP Phase 2 depending on your business readiness and individual circumstances.

You can start Phase 2 reporting if your solution is ready for 1 January 2022.  If your solution is ready and you can start Phase 2 reporting before 1 March 2022, you will be reporting on time and you won’t need to apply for more time.

Digital service providers (DSPs) who need more time to make the changes and update their solutions to support STP 2 can apply for a deferral for their customers.

Until 31^st December 2022, there won’t be penalties for genuine mistakes for the first year of Phase 2.

You can apply for more time past your DSP’s deferral if you need more time to transition. Your registered agent can also apply on your behalf.

Benefits of STP Phase 2

Benefits for employers

The first phase of the STP rollout tries to streamline the payroll process through quick and easy submission; the second phase will reduce redundancies in the reporting and submission process. This will prevent mistakes and make tax returns easier for both employers and employees because so much of the data will have already been collected.

For example, employers will no longer need to do the following tasks: 

• Completion and provision of Employment Separation Certificates for terminated employees.
• Monthly completion and submission of child support deductions report.
• Provision of employee payment summaries.
• Provision of payment summary annual report to the ATO.
• Sending of employee TFN declarations to the ATO.

Benefits for employees are equally expansive and include:

• Ensure more accurate payments from their employers.
• Income-related debt will be lower for employees.
• Changes to income will be easier to decipher.
• Fewer reporting errors.
• More equitable debt capacity analysis.

Things that remain the same

While you’ll need to report additional information in your STP report, there are many things that will stay the same, such as:

• the way you lodge
• the due date
• the types of payments that are needed
• tax and super obligations
• end-of-year finalisation 

Key changes

Most of the additional information you need to report should already be captured in your current payroll software.

The key changes to the STP report include:

• Disaggregation of gross.
• Employment and taxation conditions.
• Income types.
• Country codes.
• Child support garnishees and child support deductions.
• Reporting previous Business Management Software IDs and Payroll IDs.

Conclusion

It’s important you are ready to start STP Phase 2 reporting once your digital service provider (DSP) has updated your product.

This information is also available as a PDF – see Employer STP Phase 2 checklist (PDF, 232KB)

Learn more about

• Things you can do now to prepare for STP Phase 2 reporting
• STP Phase 2 help and support resources

Contact us today to learn more about how we can help your business reach the highest level of growth through safe outsourcing.