Single Touch Payroll (Phase 2) is here: What every employer needs to know

Phase two of the Australian government’s Single Touch Payroll kicked off in January 2022, further reducing the reporting burden for employers who need to report information about their employees to multiple government agencies. Ben Thompson, CEO of people-management platform Employment Hero explains what it means for your business.

Reducing paperwork for employers while making it easier for employees to understand their payslip, Single Touch Payroll (Phase 2) streamlines the way your business interacts with the government.

As an employer, it falls on you to ensure that your employees are paid correctly and that the taxman gets his fair share. Taking advantage of Single Touch Payroll (STP), via your accounting or payroll software, eases that administrative burden and makes life much easier.

What is Single Touch Payroll (Phase 2)?

Back in 2018, the first phase of STP granted the ATO clearer visibility into how much you pay your employees and how you pay them. Covering pay, tax withheld and superannuation, STP reports employee details to the tax office every time you run payroll, rather than only at the end of the financial year.

Commencing this year, STP (Phase 2) further eases the administrative burden on employers by reducing the amount of duplicate information you must provide to different government agencies.

For example, STP (Phase 2) eliminates the need to send Tax File Number declaration forms to the ATO. This includes the TFN itself, employment type and whether the employee has a HECS-HELP debt. Instead, this information will be automatically captured within the STP (Phase 2) pay event.

Child support deductions can also be reported via pay events, removing the need to report these separately every month to the Child Support Registrar.

Likewise, details of lump sum payments are now included in Phase 2 reporting, with details of the payment appearing in the employee’s income statement, rather than requiring a separate Lump Sum E letter.

Thanks to STP (Phase 2), employers can also report employment conditions, cessation times and the reason for job terminations to the ATO. This will eliminate the need for them to issue employees with a separate employment separation certificate.

How STP (Phase 2) benefits employees

For employees, STP (Phase 2) makes it easier for them to understand how they get paid, as well as different payment types for tax purposes.

They benefit from a clearer understanding of their wages and salary, along with more streamlined tax paperwork. All the information will be available in myGov, which means less physical paper and more accurate digital records for both them and their tax agent.

Employees will also benefit from the fact that information is fed directly into Services Australia agencies, such as Centrelink and Child Support. This significantly reduces the amount of documentation required to report and make claims, plus it increases the accuracy of payments.

Changes for business owners

While STP (Phase 2) streamlines processes and reduces a lot of double-handling for both employers and employees, it also introduces the need for employers to provide more detail in some areas.

Reporting employment type is now mandatory. You must declare whether an employee is full-time, part-time or casual, in addition to new categories such as labour hire or volunteer.

Income can no longer be reported as a gross sum. Instead, employee gross earnings must now be itemised: broken down into categories such as bonuses, commissions, director fees, paid leave, salary sacrifice, overtime and allowances.

If you have Australian resident employees working overseas, you need to provide details of the host country.

The great news is that none of this places too much of an extra burden on your business, assuming you’re taking advantage of great STP-compliant accounting or payroll software. You’ll still run payroll as usual. The way you submit STP reports, the due dates and the end-of-year declarations for each employee won’t change.

While it’s important to understand all these changes, at the end of the day Single Touch Payroll (Phase 2) will make it even easier to run payroll, so you can get down to business.

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