Single Touch Payroll (STP) is changing

  1. Changes to STP reporting from 1st July 2021

Employers should be reporting through Single Touch Payroll (STP) unless they only have closely held payees, or they are covered by a deferral or exemption. There are changes to STP reporting for small employers with closely held payees and quarterly reporting for micro employers from 1 July 2021. This may affect how you report to the ATO.

Employers with closely held payees.

From 1 July 2021, employers must report their closely held payees through STP. You can choose to report these payees each pay day, monthly or quarterly.

What is a Closely Held Payee?

A closely held payee is an individual directly related to the entity from which they receive payments.

For example:

  • family members of a family business,
  • directors or shareholders of a company,
  • beneficiaries of a trust.

You must continue to report information about all of your other employees (known as arm’s length employees) via STP on or before each payday (the statutory due date).

Ways to report amounts paid to your closely held payees

From 1 July 2021, amounts paid to closely held payees can be reported through STP in any of the following ways:

  • Report actual payments on or before the date of payment – whenever you make a payment to a closely held payee, report the information on or before each pay event, or
  • Report actual payments quarterly – report your actual payments to closely held payees quarterly. Each quarter, when your activity statement is due, report all payments made in that quarter.
  • Report a reasonable estimate quarterly – report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.

Choosing how you report

You can choose which reporting methods you want to use. Not all reporting methods will suit your business circumstances. If you can report actual payments, you should report either quarterly or on or before the date of payment.

Example 1

ABCD Pty Ltd has one closely held payee, who is the company director.

Throughout the year, the director draws money from the business to use for personal expenses and promptly records this in the company books of account as loans the company has provided her.

She visits her tax agent in December and June each year for assistance and during those visits they determine a director’s fee amount to pay which discharges the loan.

ABCD Pty Ltd chooses to report actual payments on or before the date of payment. This is because when a payment is made, the actual amount at the time of the payment is known, and the tax agent can help lodge the STP report at the same time.

  1. STP – Expanding (Phase 2)

What Single Touch Payroll Phase 2 is?

In the 2019–20 Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information.

This expansion of STP (also known as STP Phase 2) will reduce the reporting burden for employers who need to report information about their employees to multiple government agencies. It also supports the administration of the social security system.

The mandatory start date for STP Phase 2 reporting will be 1 January 2022.

What’s next?

There is nothing you need to do right now. The ATO is working closely with digital service providers who will update their STP-enabled software (for example, Xero software).

We have published a factsheet which covers the key changes and more detailed information will be available soon.

It’s important to remember that all STP-enabled solutions have different functions and updates for the expansion will be offered in different ways. What you need to do to set up will depend on what product you use and how you manage your payroll.

The ATO will soon be providing more information about what to do if you need additional time to transition to STP Phase 2.

What is changing?

The additional information you will need to report should already be captured in your current payroll software.

The key changes to the STP report will include:

Disaggregation of gross – currently, your STP report includes a gross amount, which is the total of many different components and payment types. Because some of these are treated differently for social security purposes, you will now need to report more detail.

Your STP report will separately itemise the following components of the gross amount:

  • Allowances
  • Bonuses and commission
  • Directors Fees
  • Overtime
  • Paid Leave
  • Salary Sacrifice
  • Employment conditions
  • Income type

Examples of income types that can be reported include:

  • Salary and wages (SAW) — this is the most common income type and you may also know it as Individual non-business (INB) income
  • Closely-held payees (CHP) — this income type will help us identify where you are using the concessional reporting arrangements for amounts paid to closely-held payees
  • Inbound assignees to Australia (IAA) — this income type will help us to identify where you are using the concessional reporting arrangements for amounts paid to inbound assignees
  • Working holiday makers (WHM) — this income type will help to identify where the individual being paid is subject to the different tax rates which apply for working holiday makers.

Country codes

In some circumstances, you will need to report a country code. For example, if you make a payment to an Australian resident working overseas or to a working holiday maker, you will need to provide information about the host or home country.

Country codes will need to be reported about the:

  • home country of employees who are inbound assignees or working holiday makers
  • host country of the employees who are Australian residents working overseas.

You will need to report a Country code for the Foreign employment income (FEI), Inbound assignees to Australia (IAA) and Working holiday maker (WHM) income types.

Lump sums

There are changes on how lump sum payments will be categorised. These changes include the following:

  • Lump sum E – If you make a lump sum E payment, the amount for each financial year relevant to the lump sum E amount paid must now be included in your STP report before finalising your employee’s records. In most cases, this will remove the need for you to provide lump sum E letters.
  • Lump sum W – Return to work payments, which are paid to induce a person to resume work (for example, to end industrial action or to leave another employer) were previously included in gross. In Phase 2 reporting, this will now be reported separately as a lump sum.

Reporting previous Business Management Software IDs and Payroll IDs

You may have the option to provide us with previous Business Management Software IDs and Payroll IDs in your STP report. This might occur when you have had a change of business structure or where you have changed software and do not have the ability to zero out or finalise the previous records.This will help us reduce and fix issues with duplicate income statements for employees in ATO online services.

This is optional and not all STP-enabled solutions will offer this functionality.

Child support garnishees and Child support deductions

You will have the option to include Child support garnishees and Child support deductions in your STP report. This will reduce the need to give separate remittance advices to the Child support registrar.

What isn’t changing?

While you will need to report additional information in your STP report, there are many things that aren’t changing, such as:

  • the way you currently lodge your STP report,
  • STP reports are still due on or before pay day unless you are eligible for a reporting concession,
  • the types of payments that are in-scope for STP reporting,
  • taxation and superannuation obligations, and
  • end of year finalisation requirements.

Please find attached an ATO published factsheet which covers the key changes. The ATO has promised that there will be more detailed information available soon.

Expanding Single Touch Payroll factsheet (PDF, 227KB) Download Here

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