Single Touch Payroll Phase 2 Updates

Written by Marcus Hill
October 19, 2022
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ATO, STP Phase 2, tax

STP Phase 2 – Reducing the reporting burden for employers.

The extension of the STP reporting framework [Phase 2] is now underway. 

Single Touch Payroll (STP) is an Australian Government initiative designed to streamline payroll reporting to various government agencies and reduce compliance requirements for employers. STP Phase 1 has been rolled out and mandatory reporting has been underway for all employers for some time now.

While some accounting and payroll software already meets the ATO’s reporting requirements, some software providers have deferrals in place to allow you more time to transition to the new system.

Single Touch Payroll (STP) Phase 2 was initially planned for 1 July 2021 to align with the mandatory reporting for all employers. Some software providers have deferrals in place until December 2022 or March 2023.

If you use Xero your start date has been deferred until 31 March 2023 and MYOB user’s start date has been deferred until 1 January 2023.

Where phase one was a way of reporting employees’ tax and super to the ATO, STP Phase 2 expands the program to capture more detailed information, reducing the compliance burden for employers and individuals.

What are the key changes?

One of the main changes in Phase 2 is the introduction of income types. For example, gross payment amounts can now include a range of information that makes up the payment. You’ll now report paid leave, allowances, overtime, bonuses, salary sacrifice and other types of income as separate amounts. 

Some of the other changes that will be introduced throughout Phase 2 are:

  • Tax File Number Declaration – This will be included in STP reporting which will remove the need of filing the declaration separately. However, employees will still be required to provide you with their TFN declarations.
  • Introduction of Directors Fees as a separate pay item.
  • Introduction of the new lump sum payment called “Lump Sum W” (return to work payment).
  • Employment types (full-time, casual, labour-hire, etc.) will now be declared in the STP report.
  • Including country codes if you are making payments to Australian residents working overseas.
  • Employee income components (paid leave, bonuses, commissions, allowances, etc.) will now be itemised.
  • Termination payments also include the reason for ceasing employment.
  • Breaking down gross income into components – Currently, STP reports gross income only, while STP Phase 2 will report components that make up gross income.  
  • There will be an option to now include child support garnishees and deductions in the STP report.

You may see some of these changes already rolled out in Xero. While these are not mandatory yet, they’re available now for you to start getting ready ahead of the transition.

What isn’t changing

While you’ll need to report additional information in your STP report, many things 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 requirements.

As an employer, being well-informed about these changes is essential, even if your software is not yet ready to be fully compliant with the changes. If you have any questions about STP Phase 2, reach out to us. Send us a message or give us a call at 07 3878 9181 so we can discuss any questions or issues you may have.

Learn more about STP Phase 2 in this handy guide from Xero. 

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