What employers need to know about STP
Updated: Aug 8, 2019
The Single Touch Payroll system is a significant change for all kinds of businesses across Australia.
Aside from automating the entire payroll reporting process, this should also simplify the end of financial year process for employers and employees alike particularly when it comes to filing income tax returns. However, employers will have to understand what steps they need to take in order to fully implement this new system and remain compliant with ATO reporting requirements.
STP implementation for businesses
If a business has more than 20 employees, then it is expected that at this point they will have fully integrated their business with the STP system since the start date for these kinds of businesses was on 1 July 2018. This means that as of this date, businesses under this category have already been required to report via the STP system.
For businesses with 19 employees or less, they are now required to comply with the STP system reporting starting as of 1 July 2019. This first year of implementation will be a transition period and no penalties will apply as per phase one.
Businesses that currently employ the following kinds of employees are included in this headcount:
• Full-time employees
• Part-time employees
• Overseas-based employees
• Employees on leave of absence/absent for that particular day, whether paid or unpaid
• Seasonal employees (i.e., employees who are employed in order to meet a seasonal working load)
• Casual employees who are working for the business from March 2018 and are on the business’s payroll starting from 1 April 2018
However, the following kinds of employees do not need to be included in the headcount when determining the business’s total employee size:
• Employees who stopped working for the business before 1 April 2018
• Independent contractors
• Religious practitioners
• Company directors
• Casual employees who did not work in March 2018
• Third-party employees
What happens when employers start reporting via the single touch payroll system?
Once business owners have determined which employees are covered by STP reporting rules, they should note of certain changes as well as additional instructions that will apply once the STP system is incorporated into their accounting/payroll software. Firstly, employers will need to report all of their employees’ super information, either during or before every pay run. This information will be automatically loaded into the STP system via the business’s STP-integrated accounting software. The ATO also announced that there will be several low-cost STP options available for microbusinesses, with these options costing no more than $10 per month. Some of these options will be free.
Employers currently have three options when it comes to reporting their employees’ information via the STP system:
• STP reporting via the current accounting/payroll software
• Third-party STP reporting
• Switching from your previous accounting software to an STP-integrated software
* Keep in mind that company groups will have to include all employees working for all member companies and calculate this as a single unit representing the entire group.
STP reporting via the current accounting/payroll software
It is important to first check if your current accounting software is STP compliant. This can either be in the form of a solution which allows the business to run the payroll and send all relevant information via a third-party sending service provider outside of the software, an end-to end solution which sends all relevant information directly to the ATO from the accounting software (the most common option), or an alternative which allows the business to send all information via a third-party sending service provider incorporated into the software.
Switching from your previous accounting software to an STP integrated software
If business owners discover that their current payroll software does not employ any kind of STP option, then it may be time to switch to an accounting software that is integrated with relevant STP options. This is fairly unlikely, though, as most software providers already have – or will soon have – STP-compliant versions available. In some instances, you may need to upgrade your current software to a version that incorporates STP reporting. There are a lot of accounting software options available in the market, which is why it is best to consult with your accountant, bookkeeper or tax agent to determine which software will best suit your business.
What changes in terms of actual reporting
Since the STP system no longer requires employers to file a payment summary annual report (PSAR), this also means that they will no longer have to provide payment summaries to their employees – this information will be made available to them via their myGov accounts. At the end of every financial year, employers will be required to create and file a finalisation declaration, which will make all relevant STP information tax ready for employees to use. Employers will also be required to report their employees’ super liability information via the STP system. Super funds will then automatically report to the ATO after the employer has paid the super amount into the employee’s fund.
Third-party STP reporting
Another option that business owners have when it comes to STP reporting is to ask a third party to report all employee information on behalf of the business. This could either be a separate payroll service provider or a registered tax agent or bookkeeper. However, employers must always make sure that these third parties are prudent in reporting all information into the STP system.
Keep in mind that from 2020 onwards, the ATO will be pre-filling the W1 and W2 activity statement labels with all of the relevant information reported by the employer via STP. This means that employers will still need to file their activity statements even with STP in place.