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  • Expanding Single Touch Payroll (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.

    See also:

    What’s next

    There is nothing you need to do right now. We are working closely with digital service providers who will update their STP-enabled 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.

    We will soon provide more information about what to do if you need additional time to transition to STP Phase 2.

    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 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
    • end of year finalisation requirements.

    See also:

    Employer guide

    The Phase 2 employer reporting guidelines are now available. These guidelines aim to help you understand what is required for STP Phase 2 reporting through your STP Phase 2 enabled software.

    The following information is also provided to help you understand the key changes and what they might mean for you.

    Key changes

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

    The key changes to the STP report 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

    In Phase 1 reporting, some allowances are reported separately and some are reported as part of gross.

    The expanded STP report will now report all allowances separately, not just expense allowances that may have been deductible on your employee’s individual income tax return.

    This means you will include additional information in your STP report about what the allowances you are paying your employee are for, such as:

    • cents per kilometre vehicle costs
    • overtime meals
    • travel
    • tools
    • tasks
    • qualifications and certificates.

    Bonuses and commissions

    Some employees may receive bonuses or commission payments in addition to their salary or wages. You will need to start reporting these amounts as a separate component.

    Directors' fees

    If you pay directors' fees to the directors of your company, you will need to report them in STP as a separate component. Previously they were included in gross.

    Overtime

    You will need to provide the overtime amount paid to an employee in your STP report.

    Overtime is when an employee works extra timeExternal Link. It can include work done:

    • beyond their ordinary hours of work
    • outside the agreed number of hours
    • outside the spread of ordinary hours (the times of the day ordinary hours can be worked).

    Paid leave

    You will need to separately report paid leave through STP and identify the type of paid leave your employee has taken. The types of paid leave you will report include:

    • ancillary and Defence leave
    • cash out of leave in service
    • other paid leave
    • workers' compensation.
    Ancillary and Defence leave

    This is how you report amounts you pay to employees who are engaging in activities such as jury service, service with local fire or emergency authorities, or service in the Australian Defence Force.

    Cash out of leave in service

    You will also need to include in your STP report when you have paid out leave entitlements in lieu of your employee taking the absence from work.

    Other paid leave

    This is how you report all paid absences, unless they are included in one of the other paid leave types. It includes many common types of payments relating to leave such as annual leave, leave loading, long service leave, and personal leave.

    Workers' compensation

    This is how you report any workers’ compensation payments you make to an injured employee. It includes payments for the hours not worked (or not attending work as required) or if the employment has been terminated.

    Salary sacrifice

    Changes to superannuation guarantee law that apply from 1 January 2020 mean that salary sacrifice contributions can no longer:

    • be used to reduce ordinary time earnings
    • count towards your minimum superannuation guarantee obligations.

    You will need to report salary sacrificed amounts in your STP report. This will make it easier for your employees to understand their superannuation entitlements when looking at their income statement.

    When reporting salary sacrifice, there are two new fields to choose from:

    • Superannuation
    • Other employee benefits.

    This means that you will also need to start including employees who sacrifice 100% of their payments in your STP report.

    Employment conditions

    You already provide some employment condition information through your STP report, such as your employee’s commencement and cessation date, and other information through your employee's Tax File Number (TFN) declaration.

    The extra information you will include in your STP report will mean that you will no longer need to send TFN declarations to us – you will only need to keep them with your employee records.

    This information includes the following:

    Cessation date and reason

    If your employees leave, reporting their cessation date and the reason will reduce the need for you to give them separation certificates. There are many reasons why employees leave — for example you will tell us whether it was voluntary, a redundancy or due to illness.

    If you make another payment to that employee (for example an ETP), you do not need to update the cessation date.

    If you re-hire that employee using the same payroll identifier, you do not need to report their cessation date again, even if you re-hire them under a different ABN or branch within the same group.

    Employment basis

    Employment basis is now a mandatory field. You will need to tell us whether your employee is:

    • full time, part time or casual
    • a labour hire worker
    • working under a Voluntary Agreement for withholding
    • a death beneficiary
    • a non-employee – a person who is not in scope of STP for payments but may be voluntarily included in STP for superannuation liability reporting only.

    Tax treatment

    There are many factors that help you work out the correct amount to withhold for your employees. This will be based on the information your employee provides in their TFN declaration and information you know about them. By reporting some extra information each payday, you will help us identify the factors that influenced how you calculated the pay as you go withholding.

    Your STP report will also let us know information about your employees such as whether they:

    • are claiming the tax-free threshold
    • have a medicare levy exemption
    • have notified you that they have a Study and Training Support Loan.

    Reporting this information through your STP report will mean you will no longer need to send their TFN declarations to us. It will also allow us to notify your employee if they gave you incorrect information which may lead to them getting a tax bill at the end of the year.

    Income type

    The reporting of income types is being introduced to:

    • identify payments you make to your employees with specific tax consequences
    • make it easier for them to complete their individual income tax return
    • help us identify where you are using a concessional reporting arrangement.

    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.

    When your STP-enabled solution is ready

    When your provider's STP-enabled solution is ready, they will let you know the steps you should take. You should follow their instructions to upgrade your software.

    Last modified: 12 Jul 2021QC 65099