What to expect in Phase 2 of Single Touch Payroll

November 17, 2021

In 2022, Phase 2 of Single Touch Payroll (STP) will come into effect. This expansion of STP is intended to reduce reporting burdens for employers who need to report information about their employees to multiple government agencies, as well as streamlining tax and Services Australia compliance for employees.

Key Changes

Key changes to the STP report include:

Disaggregation of gross

Under Phase 1, the STP report included a gross amount which was the total of a number of different components and payment types. Some of these components are treated differently for social security purposes, and under Phase 2 they must be reported in more detail. This means that instead of a single gross amount, you must separately report gross, paid leave, allowances, overtime, bonuses and commissions, directors’ fees, lump sum W and salary sacrifice.

Employment & taxation conditions

Previously, information about employees’ employment basis, TFN declarations and when and why they left your employment was reported through various forms. Under STP Phase 2, this process is streamlined by inclusion of this information in your STP report.

Income types

Current reporting of income types under STP Phase 1 is changing under Phase 2 to provide a more flexible process for identifying payments made to employees who have specific tax consequences, make it easier for employees to complete their individual income tax return and help the ATO identify where you are using a concessional reporting arrangement.

Country Codes

Under STP Phase 2, you may need to report a country code and information about host countries and home countries when you make payments to employees whose income type is foreign employment income, inbound assignee to Australia or working holiday maker.

Child support garnishees & child support deductions

Phase 2 will provide an option to include child support garnishees and deductions in your STP report, reducing the need to give separate remittance advices to the Child Support Registrar. Not all STP-enabled solutions will offer this functionality, and if your payroll solution doesn’t offer it or you choose not to report this way, you can continue to report directly to the Child Support Registrar using your existing reporting channel.

Reporting previous Business Management Software IDs & Payroll IDs

If you have changed your business structure or change software and can’t zero out or finalise previous records, you may have the option to provide the ATO with previous Business Management Software IDS and Payroll IDs in your STP report. This optional functionality will not be offered by all STP-enabled solutions.

Important Dates

Reporting for STP Phase 2 becomes mandatory on 1 January 2022. However, the ATO has indicated that they will take a flexible and reasonable approach to enforcement of Phase 2 based on business readiness and individual circumstances. In line with this approach, the ATO will not issue penalties for genuine mistakes made during the first year of Phase 2 reporting (ending on 31 December 2022), including for employers who have already started reporting under STP 2.

In addition to this, extensions may be available in the following circumstances:

Digital Service Provider extensions

Digital Service Providers (DSPs) such as Xero, QuickBooks Online or Reckon who require more time to implement STP 2 are able to apply for a deferral for their customers. If your DSP has a deferral, they will let you know. If you are ready to starting reporting by your DSP’s deferral date, you do not need to apply for more time.

Window to begin reporting

If you’re ready to start Phase 2 reporting on 1 January 2022, you should do so. However, if you aren’t able to start reporting by 1 January 2022 but are able to comply by 1 March 2022, you will still be considered reporting on time and you won’t need to apply for more time.

Personal extensions

If you need more time beyond your DSP’s deferral, you or your registered agent can apply for a delayed transition from December 2021.

Action Required

Once your DSP has updated their STP-enabled software for Phase 2 report, they will let you know what you need to do. In order to prepare for this, you can do the following:

Familiarise yourself with the STP Phase 2 employer reporting guidelines
Make sure you understand the changes to how you report through STP, what new information will have to be reported, and how you will record and store this information if it isn’t already recorded in your payroll system
Review your business and payroll processes and plan for how and when you will make the arrangements needed for transition

How we can help

If you need help complying with your requirements under STP 2, please give our friendly team a call on (07) 3217 2477.