STP Phase 2


12th November, 2021

STP Phase 2: Everything you need to know

Single Touch Payroll (STP) is being expanded to reduce the burden on employers who need to report employee information to multiple government agencies.

By now most businesses will be well versed in using the first phase of Single Touch Payroll (STP), an ATO initiative designed to streamline the reporting of employee pay, tax withheld and superannuation with the help of software providers like MYOB.

Phase 2 of the initiative is now just around the corner. From 1 January 2022, businesses will be required to report additional information via STP, eliminating existing reporting requirements in some instances.

What is STP Phase 2?

This expansion of the Single Touch Payroll (STP) scheme changes reporting requirements for employers when it comes to what information they give to the ATO regarding their payroll.

Like STP, STP Phase 2 is likely to have some impact on all businesses that employ staff. These changes and impacts are covered in this article.
Why should I worry about STP Phase 2 now?

Business owners have less than 50 days now to comply with STP Phase 2 or potentially face penalties from the ATO.

“The first installment of Single Touch Payroll was introduced to reduce businesses’ reporting requirements, enabling Australian businesses to digitally engage with Government agencies in a single process,” wrote bookkeeper and MYOB small business expert, Chris McComb in an article for Kochie’s Business Builders earlier this week.

“This was invaluable during the pandemic for enabling JobKeeper delivery. However, in expanding this model to STP2, the additional reporting businesses will be required to undertake will lead to an adjustment for many.”

For this reason, McComb and MYOB are urging all employers to make sure they’re having conversations with trusted advisors and putting plans in place to ensure compliance deadlines are met.

“Five months out from the 1 January 2022 deadline, MYOB data revealed an overwhelming 69 percent of small business owners did not understand what was needed to become STP2 ready,” wrote McComb.

“On International Accountant’s Day, we’re reminding Australian [small and medium enterprises] that the deadline is approaching and encouraging them to engage an advisor to help become STP2 compliant.”

Are there deferrals available for STP Phase 2?

For MYOB customers, the software provider has secured deferrals for its customers, extending the compliance deadline by 12 months to 1 January 2023.

For employers and their accounting and bookkeeping advisors, that leaves scant time to prepare at a time of year that’s often chewed up by end of year activities and hard-earned leave.

In either case, now is the time to work with advisors to update your employee onboarding processes and take the burden out of upcoming payroll compliance dates.

This article offers answers for the most frequently asked questions, so you can get your processes up to speed, fast.

What are the main changes in STP Phase 2?

Changes that will reduce reporting requirements across the following four areas.

1. Tax File Number Declarations

Information collected from TFN declarations – including the TFN itself, employment type and whether the employee has a HECS-HELP debt – will be included in the STP report and the declaration itself will no longer need to be sent to the ATO.

2. Employee Separation Certificates

These certificates will no longer be required as the reason why an employee has left the business will now be provided via the STP report.

3. Lump Sum E payments

Previously, if an employer makes a payment owing from previous years a Lump Sum E letter would need to be provided to the employee. This information must now be included in Phase 2 reporting, with details of the payment appearing in the employee’s income statement.

4. Child Support

Businesses will have the option to include child support garnishees and deductions in their STP report, reducing the need to provide separate advice to the Child Support Registrar.

Are there additional reporting requirements?

Additional reporting requirements are introduced for employment type, disaggregation of gross income and the inclusion of country codes as per the below.

1. Employment Type

Previously optional, reporting of employment type will be mandated under Phase 2 reporting. Businesses will need to declare whether their employees are full-time, part-time or casual, in addition to new categories such as labour hire or volunteer.

2. Disaggregation of Gross

Income will no longer be reported as a gross sum, instead each component must be itemised including salary sacrifice, overtime, paid leave, bonuses, commissions, director’s fees and allowances (allowances must also be individually itemised).

3. Country Codes

If you have Australian resident employees working overseas, businesses will need to provide details of the host country.

What isn’t changing with STP in Phase 2?

The way you submit your STP report, the due date and the end-of-year finalisation declaration for each employee will not change. Tax and superannuation details will still be required as usual.

Does my business need to comply with STP?

From 1 July 2019, STP became a mandatory obligation for all businesses that withheld PAYG contributions for employees or contractors. Phase 2 is a continuation of STP and remains mandatory.

Sole traders and freelancers that do not employ others do not need to comply with STP requirements.

What do I need to do to prepare for STP Phase 2?

For employers and their advisors, the first thing to do is familiarise yourself with STP2 requirements and specifically, how they impact your reporting requirements.

Making time for an in-depth discussion between key decision makers and key advisors will be an important aspect to this. Employees should also be brought into the discussion once a clear view of the individual organisation’s requirements has been determined.

From that point on, preparation becomes a case of implementing a plan that will step you towards your compliance deadline.

For MYOB’s customers, the software provider is currently updating its software in advance of these changes and has already begun rolling them out in products, allowing businesses and their advisors the ability to begin uploading new information.

How will these changes impact business?

These changes will mean at least a minor adjustment to payroll processes for all employers, with the extent to which the additional reporting is required will ultimately depend on the size, structure and type of employees of each individual organisation, as well as the systems and processes they already have in place.

To help ease the transition of employee information over to STP Phase 2, MYOB will be providing additional support and resources prior to and during the change period.

Employees will also benefit from Phase 2, with the information provided feeding directly into Services Australia agencies such as Centrelink and Child Support. This will reduce the amount of documentation required to report and make claims and will increase the accuracy of payments due.

Individual tax time will also be made simpler as income details will be pre-filled in each employee’s tax return.

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What are the benefits of STP Phase 2?

The ATO describes the major benefits for employers as per the below.

1. TFN declarations

Employers will no longer need to send employee TFN declarations (they will still need to be collected and files in employee records)

2. Closely held payees and inbound assignees

For businesses using concessional reporting, such as is the case for closely held payees or for inbound assignees, this can be communicated through income types

3. Lump Sum E payments

When making Lump Sum E payments, employers won’t need to provide Lump Sum E letters to employees

4. Payroll data integrates with Services Australia

Payroll information employers give to the ATO will be share in near real-time with Services Australia, who can use it to streamline requests

Are there penalties for STP non-compliance?

Under STP, the penalty for late or missed reporting is $210 days for every 28 days your report is overdue to a maximum of $1,050 for small businesses, $2,100 for medium entities, $5,250 for large entities and $525,000 for global entities.

However, under Phase 2, genuine reporting mistakes will not be penalised in the first year until 31 December 2022.

Where can I go for more information?

For all the official details on STP compliance, deadlines and more, the ATO website should be your first port of call.

For MYOB users and for those who want to know how accounting software can help make STP Phase 2 simple, visit the STP Phase 2 Hub.