The journey to phase two of One Touch Payroll (STP2) has been fraught with delays, but the deadline to activate it is approaching.
STP2 started on January 1, but many well-known payroll officers secure reports from digital service providers (DSPs) which effectively pushed the STP2 deadline to the end of 2022.
But with the grace period rapidly shrinking, it’s time for companies to activate the feature with their DSPs and, if necessary, communicate with employees about the new rules.
To recap, STP2 will change the way payroll items are reported. In short, the Australian Taxation Office (ATO) will require more details on payments made by companies with employees.
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Until now, with single payroll, things like gross pay, bonuses, vacations, commissions, and more were grouped together.
STP2 extends this reporting requirement, in what it calls crude disaggregation. So instead of putting everything into the gross salary, it now has to be itemized and each payment must be directed to the correct category, as determined by the ATO.
If an employee receives a bonus, it must be reported as a bonus, so that the ATO can see exactly what this amount is for the employee. When leave is taken, it is also reported as leave and not as gross pay.
The STP2 statement also begins to separate the types of income. For example, employers making payments to closely related employees (such as family members, administrators of trust beneficiaries) have been required to report them since July 2020, either by each payday or quarterly.
Employers will now have to disclose that the person being paid is a closely held payee using the Closely Held Payee (CHP) income type.
All of these changes are designed to give the ATO much greater visibility and they will raise questions if items are not flagged correctly. After December 31, 2022, there are financial penalties for errors.
SMBs may need to beef up their payroll reporting, as the new system will alert auditors if items don’t match.
If an employee earned $100,000 in total salary in 2021-22, the ATO expects to see $10,000 in superannuation paid. If only $9,000 in super was paid, the company will be notified as to why the employee is missing $1,000.
The explanation could be legitimate — for example, certain types of allowances are not subject to the super. But it must be reported correctly to satisfy the listeners.
Super is a key focus area for the ATO, which was to $2.9 billion in taxes billed to employers who has not paid a superannuation according to a report by the Australian National Audit Office.
It’s important that companies don’t just assume they’re allocating positions to the right place. They should get the correct list from the ATO, an accounting firm, or their software vendor to make sure they don’t get caught in the wrong place.
There are several types of car allowances, for example, and each has a separate STP2 category, so it’s very easy to put them in the wrong place.
Unused vacation entitlements at termination were previously grouped with gross salaries in year-end payout summaries, but this item should now be listed on a separate line under unused vacation entitlements at termination. ‘use.
Severance pay is another complex area as the tax treatment is different depending on the type of severance pay applied.
Mother-dad businesses may not have that knowledge base to do it right. High-end software products will be able to calculate these terminations, but there is still an element of skill in determining the correct tax.
This stricter reporting coincides with Services Australia applying greater scrutiny to people claiming benefits, as it begins to match its own payment data with that provided by employers to the ATO, to improve the wellness integrity.
SMEs, as well as family businesses, that manage their own payroll should consider the implications of STP2 and seek professional advice where necessary to ensure compliance.