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Single Touch Payroll Phase 2 Explained

The 1 March 2022 deadline for businesses in Australia to comply with Single Touch Payroll (STP) Phase 2 requirements has just passed. If you’re an employer looking after payroll for your business, you want to make sure your payroll software has been updated and is compliant.

In this article, we explore what the STP Phase 2 requirements are, what benefits and insights STP provides for government and decision makers, and how you as an employer can continue to meet your super obligations and responsibilities for your team.

What is STP?

STP was first introduced as a phased approach on 1 July 2018 for businesses with more than 20 employees, and 1 July 2019 for employers with 19 or less employers. It’s unlikely that you’ve not at least heard of STP and its impact by now. But to recap, it’s a mandatory obligation and was brought in as a Government initiative as a means to reduce employers’ reporting burdens to different government agencies.

During the first phase of the rollout there was an obligation for employers to provide payroll information including details on salaries and wages, pay as you go (PAYG) withholding and superannuation.

Super funds also report when employers make the super payment to their employees’ chosen or default fund. There is an extra check at this point to make sure employees are paid their correct super entitlements. This is particularly important with the increasing superannuation guarantee moving from 9% in 2013 in a phased approach up to 12% in 2025, as it makes it easier to spot any accidental errors in the payment of entitlements.

While the burden of this reporting may sound considerable, employers’ lives were made easier as payroll software providers updated their systems to ensure they were STP enabled. This meant that businesses who were usually using more manual reporting methods, or not using a payroll accounting software, had to adapt and change the way they did their payroll reporting to ensure compliance.

After the rollout in 2019, Phase 2 of STP was introduced with the goal of providing additional reporting to the ATO so that multiple government agencies can have the employee information available.

With Phase 2, from an employer perspective, the way you lodge your STP through your payroll software is unlikely to change. What does change is that your STP-enabled payroll software now provides more information to the ATO after you complete each pay run. What is important to highlight here, is that while the process itself hasn’t changed, there is considerable work involved for payroll software providers to ensure they have updated the code requirements. Given the scope of the changes it is in your best interest to make sure your software provider has actioned the updates.

What the changes are in the recent Phase 2

STP Phase 2 represents a considerable expansion on the information and data employers need to lodge with the ATO each pay period, with the goal of making reporting requirements to different government agencies much more streamlined.

It is designed to increase information sharing, particularly with Services Australia so that employees can get the right payment for any government payments they may receive, as well as the optional requirement of confirming any child support deductions.

The following data is now included in STP payroll files through STP-enabled payroll software providers.

  • Disaggregation of the gross amount paid to your employees
  • Employment and taxation conditions including information about the basis of employment, TFN declaration and details on when and why employees leave.
  • Income types of which there are almost a dozen different types
  • Country codes to identify the location of an Australian resident working overseas who receives payment.
  • Child support garnishees and child support deductions is an optional reporting requirement to remove the need to report these payments to the Child Support Registrar.

It’s important to note that the way a business lodges STP data has not changed, and due dates do not change either. Additionally, the requirement to prepare and lodge Activity Statements (where applicable) still remains.

Timing for compliance

The  start date for Phase 2 compliance was originally set as 1 January 2022. However, in light of the impact  Omicron Covid-19 wave had on developers the ATO took a pragmatic and flexible approach to delivery.  As a result, payroll providers could request a deferral of this due date.  Payroll providers who applied for and received a deferral should have communicated this to their clients. If a payroll software provider has deferral in place it automatically applies to the businesses that use that payroll software. Therefore, any reporting  completed by 1 March 2022 will be considered compliant and no need for a further deferral from the business.

If you are a business owner unsure on whether you are meeting your obligations, reach out to your payroll software provider to confirm if they are STP Phase 2 compliant, or apply for deferral of reporting with the ATO as soon as possible.

The benefits of STP

Streamlined reporting

When STP was first introduced in 2019 the main benefit was to help employers streamline their reporting process to the ATO. With information provided after each payroll cycle, the ATO can now pre-fill PAYG sections of BAS for employers and eliminate potential errors and double handling. Plus it meant your staff now have better visibility of their income and types of income at tax time, because the information is pre-filled into their tax return. It is also particularly beneficial to share superannuation information and payments.

Phase 2 simply goes further to streamline employer interactions with the ATO. With Services Australia (which is responsible for Centrelink, Medicare and child support) explaining that recipients of its payments will benefit because it will use information gained from STP Phase 2 to streamline the processing of customers’ benefit claims.

Reduces your business risk of underpayment scandals

The major benefit of STP, and this sentiment has been echoed by Fair Work Australia in recent times, is the benefit of catching payroll errors before they become a major problem. The underpayment of staff entitlements has been something that has been particularly alarming in recent years as STP first began its rollout in 2019. We’ve seen a considerable increase in the number of underpayment scandals hitting the news headlines around the country.

The underpayment of entitlements has been highlighted in several high-profile businesses, largely due to them using old technology that had not kept up with the various changes in payroll regulations.

Some recent scandals in this area include when Woolworths admitted in October 2019 that they had underpaid thousands of staff by as much as $300m. ​​Michael Hill International was required to spend up to $25 million to compensate employees who were underpaid over a six-year period. And who can forget the high-profile case of George Calombaris’ companies underpaying staff at his restaurants by nearly $8m. He was told at the time he needed to implement new payroll and compliance systems across his range of restaurants.

STP encouraged employers to move toward digital payroll systems. With many payroll systems able to automatically interpret modern awards and update when things such as the superannuation guarantee increases each year.

As a business owner, having your brand in the headlines for not paying staff correctly can be extremely damaging. So, by ensuring you’re using a payroll software that is compliant to STP requirements, your business risk is reduced considerably.

Greater insights of macro data

One of the additional benefits of STP, particularly for Treasury and the Australian Bureau of Statistics, is that STP now enables analysis of changes in wages and salaries in a much more real time fashion than ever before.

As a result, we can have greater insights into key sectors of the economy as a whole and have more real time access to employer data to help aid decision makers in getting a clear snapshot on the state of business in Australia. This proved to be helpful in the short term during the challenges of Covid-19, where we saw insights into the changing nature of termination payments to give a clear idea on the immediate impact of the pandemic.

Over the longer term, the greater granular information that STP has facilitated will allow greater macro data useful to help drive long term structural change.  As an example, the ABS now has a new monthly economic indicator, looking at business turnover. This timely and accurate data is essential in understanding and planning for the Australian economy’s recovery from the challenges of the past few years.

How Beam makes STP compliance simpler

While Phase 2 was designed to reduce the burden of compliance for employers, it further highlighted the need to ensure your business has reliable and compliant payroll software.

Here at Beam, our APIs work seamlessly with payroll software providers to deliver integrated super payments and STP reporting for business clients.

The Beam APIs allows our software partners to easily integrate an STP compliant messaging solution into their payroll software, without the need for external portals.

Beam STP has been specifically designed to help businesses save time and meet their STP reporting requirements at the click of a button. Allowing businesses to report payments such as salaries and wages, PAYG withholding and super information each time they pay their employees, all from inside their payroll software.

Important information
Beam is issued by Precision Administration Services Pty Ltd (Precision) (ABN 47 098 977 667, AFSL No. 246 604). Precision is wholly owned by Australian Retirement Trust Pty Ltd (ABN 88 010 720 840, AFSL No. 228 975) (via its custodian) as Trustee for the Australian Retirement Trust (ABN 60 905 115 063).
While this material has been prepared with all reasonable care, no responsibility or liability is accepted for any errors, omissions or misstatements however caused.  This material contains general information only. Any advice does not take into account your personal objectives, financial situation or needs of any particular individual or business. You should consider the appropriateness of any advice having regard to your personal objectives, financial situation and needs before acting on that advice. A copy of the Product Disclosure Statement (PDS) can be obtained by calling 13 11 84 or visiting beamconnect.com.au