STP Phase 2
Single touch payroll (STP) has now entered Phase 2, although most employers may not yet be reporting under this phase as many digital service providers (DSP) have obtained deferrals to help get their software ready and help their customers transition.
Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting solution directly to the ATO when the payroll is run.
What is STP Phase 2?
In a nutshell, it means employers have to report much more detailed information on the entitlements they are paying to employees and contractors.
Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems will need to be reported through the payroll software. A pertinent example is the start date of employees. While many newer businesses may have that information to hand, older businesses may have trouble finding an exact start date, particularly for long time employees. In those instances, the ATO notes that a default commencement date of 01/01/1800 can be reported for STP Phase 2 purposes.
Employers will also be required to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN is not available for an employee, a TFN exemption code must be used. If a payee is a contractor and employee within the same financial year, both their ABN and TFN must be reported.
In addition to reporting TFNs and commencement dates for employees, employers are now also required to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hire, voluntary agreement (contractor with own ABN but in a voluntary agreement with business to bring payments into the PAYG system), death beneficiary, or non-employee (i.e., not within the scope of STP but included for voluntary reporting of super liabilities).
STP Phase 2 reports
The report generated from STP Phase 2 will also include a 6-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from payments to employees.
Most STP solutions will automatically report these codes, but employers should still understand what the codes are to ensure that they are correct. For example, RTSXXX refers to regular (R) employees with a tax-free threshold (T), who have study and training support loans (S), who have not asked for a variation of amounts withheld due to Medicare levy surcharge (X), Medicare levy exemption (X), or Medicare levy reduction (X).
The income and allowance details attributed to employees will also be subject to further detailed reporting in STP Phase 2. For example, instead of reporting a single gross amount of income, employers will need to separately report on gross salary or wages, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payment (lump sum W) and salary sacrifice amounts.
STP Phase 2 deferral
While STP Phase 2 commenced on 1 January 2022, most DSPs have obtained deferrals which cover their customers (e.g. Xero has obtained a deferral until 31 December 2022).
This means that if your DSP has a deferral in place, you do not need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires.
However, if your business still needs more time in addition to your DSP’s deferral, you can apply for your own deferral online.
Need help to comply with STP Phase 2?
Payroll is complicated and your business may need more help to understand the extra information required for STP Phase 2 reporting.
If your DSP is ready for STP Phase 2 reporting but you need more time, you may need to apply for a deferral to give you more time to get ready.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.