Understanding Single Touch Payroll obligations
Single Touch Payroll (‘STP’) is a Government initiative aimed at cutting red tape for employers and improving visibility of compliance with business obligations such as:
- salary and wages and similar payments;
- Pay As You Go (‘PAYG’) withholding; and
- certain superannuation related information;
by requiring ‘real time’ reporting of payroll information directly to the ATO.
Importantly, STP is designed to extract information that already exists in an employer’s payroll system.
As such, it is not intended to impose any additional burden on employers, other than requiring them to report the information to the ATO sooner.
From a practical perspective, businesses must use STP compliant software to comply with the new obligations. This will necessitate updating or changing their current payroll software.
Generally, most payroll software providers will have already adapted their software to ensure the required reporting capability has been incorporated.
Once a business has adopted the appropriate software, ongoing reporting obligations should be dealt with as part of an automated software function.
Effectively, employers will send their employees’ relevant payroll information required under STP to the ATO each time they run their payroll and pay their employees.
Crucially, in complying with their STP obligations employers will not change their payroll cycle.
When a business reports to the ATO via STP, the relevant employees will be able to view their year-to-date tax and super information through myGov.
As a result of STP reporting, a number of ongoing compliance obligations for employers will be streamlined, and/or removed. Some benefits for employers under STP include the following:
- The removal of the need to issue an annual ‘Payment Summary’ to employees for payments reported to the ATO via STP, provided an employer lodges a ‘finalisation declaration’ (i.e., generally by 14 July, although extensions are in place for the first year of STP implementation).
- The removal of the need to lodge a ‘Payment Summary Annual Report‘ for payments reported through STP.
- From 1 July 2019, STP will enable the pre-filling of BAS Labels W1 (gross salary and wages and other payments) and W2 (amounts withheld from salary, wages and other payments) for employers that are small or medium withholders.
- The streamlining of employee documentation such as the lodgment of ‘TFN Declarations’ and ‘Withholding Declarations’ via enabled software.
It is important to understand that STP does not impact or change when employers must actually remit PAYG withholding amounts to the ATO or make super contributions. The new STP obligations simply affect when employers must report these payments to the ATO.
Original commencement date
STP commenced from 1 July 2018, for employers with 20 or more employees (i.e., substantial employers).
When determining whether or not the 1 July 2018 start date applied, an employer was required to do a headcount of the number of employees they had on 1 April 2018.
Broadly included in the headcount were all full-time and part-time employees, casual employees who worked at any time during March 2018, overseas employees, any employees absent or on leave (paid or unpaid) and seasonal employees.
Pending STP commencement date for small employers now law
Small employers (being those with less than 20 employees) are now technically required to commence their STP reporting obligations from 1 July 2019.
The intended STP obligations on small employers has only recently become law, with the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 finally being passed by both houses of Parliament on 12 February 2019.
This means that from 1 July 2019 all employers, no matter their size, will generally be required to comply with the STP reporting obligations.
The ATO says it will be writing to small employers who have 19 or less employees and already use payroll software to tell them about STP, and remind them that if their payroll software offers STP, they can update their software and start reporting now.
One-year exemption for closely held payees
The ATO has announced that closely held payees – such as family members – will be given a one-year exemption from STP reporting.
The exemption will be provided to closely held payees for the 2019-2020 financial year and STP reporting for these payees will now commence from 1 July 2020. The ATO is also exploring the possibly of a quarterly reporting requirement for these payees.
The ATO’s definition of a closely held employee is one who is a non-arm’s length employee, directly related to the entity from which they receive payments, including family members of a family business, directors of a company, and shareholders or beneficiaries.
The exemption recognises that payments made to closely held employees do not always form part of traditional weekly or fortnightly payroll processes.
The ATO will be looking to provide more details about how STP reporting will affect the closely held group in the coming months.
Solutions for micro employers without existing payroll software
The ATO has released a detailed register of STP products for micro employers (generally defined as businesses with one to four employees) who do not currently have payroll software.
There are six products that are currently available, namely by Cashflow Manager, ePayroll, Single Touch Pty Ltd, CloudPayroll Pty Ltd, AccXite Pty Ltd, and Free Accounting Software Pty Ltd.
All of the products have been priced at $10 or less per month with AccXite offering its product for free until 31 December 2019 before charging $10 a month. As its name suggests, Free Accounting Software’s product will be free.
Some of the major software players such as Intuit (QBO), MYOB, Xero and Reckon have all announced that they will be providing an option at $10 or less per month, with their products to be available between April and June.
The product register released by the ATO can be viewed here: www.ato.gov.au/Business/Single-Touch-Payroll/In-detail/Low-cost-Single-Touch-Payroll-solutions/
If you are currently not using an accounting software package please speak to your accountant for advice in choosing the most appropriate package for your needs.
Flexible ATO implementation
The Commissioner of Taxation, Chris Jordan, recently made a personal guarantee that the ATO’s approach to STP will be “flexible, reasonable and pragmatic”.
In particular, despite the 1 July 2019 start date for small employers, the Commissioner has stated that they can start STP reporting any time from 1 July 2019 to 30 September 2019.
This effectively provides a three-month implementation reprieve for small employers.
The ATO has also indicated that there will be no penalties for mistakes, missed or late reports for the first year and exemptions will be provided from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.
We recommend that you check for the STP update to your existing payroll software. We remind our QBO users that STP is ready and available for use. Please contact us if you require assistance activating STP in your payroll program or if you need any other help navigating this new reporting framework.