Single Touch Payroll: Preparing for the new Phase 2 reporting requirements

We have prepared this article to inform users of the changes being introduced in what will be reported to the ATO. Additionally. This will assist users when transitioning to Phase 2 reporting obligations.

What isn't changing?

Before we go into the detail of the additional information that you will need to report through Phase 2, few things have not been changed from STP 1:

What is changing?

The biggest change of Phase 2 is the additional reporting requirements of employee and income data. The ATO's intent with capturing more information is to streamline employer and employee interactions with other government agencies such as Service Australia and reduce the administrative tasks associated with the hiring and termination of employees. The key changes are:

Disaggregation of gross

The main purpose of Phase 2 changes is to extend the use of data to social services agencies such as Department of Social Services, Services Australia (Child Support and Centrelink) and Department of Veterans' Affairs.

The move to a disaggregation of gross model in Phase 2 is due to the different assessment of income required by those agencies to administer their programmes. Not all the payments that were included in Phase 1's aggregated gross are treated the same way for welfare benefits. Therefore, the disaggregation of gross will provide the granularity to support the accurate application of employment income across the relevant welfare payments and services it is responsible for administering. Additionally, unlike the period of time for which the ATO use the data (ie, for annual income tax returns), social services agencies have specific fortnightly instalment periods whereby their customers must declare their income and upon which periodic welfare payments are made. As such, this change in reporting should improve the accuracy of payments and ensure individuals receive the right payment at the right time.

The components of gross earnings that will be disaggregated (itemised separately) include:

In STP Phase 1, salary sacrifice amounts were not required to be reported. Rather, an employee's gross amount was reported as the post-sacrificed gross amount. STP Phase 2 set salary sacrifice reporting as mandatory and the gross amount reported should be the pre-sacrificed amount.

On the other hand, The reporting of Reportable Employer Super Contribution (RESC) is voluntary under STP, though if not reported through STP, must be reported via Payment Summaries/Payment Summary Annual Reports (PSAR). Where RESC is not able to be reported throughout the financial year, a payer can report this amount as part of the finalisation process for the payee.

How to ensure gross amounts are reported correctly as per new Phase 2 reporting requirements?

To ensure gross earnings are itemised and reported in accordance with Phase 2 specifications, we introduced new pay type classifications to the pay category settings:

Employment and taxation

Relates to the employment relationship between the employer and employee and the withholding rates applied to an employee. STP 2 requires the following information to be reported:

Please note:

Child support garnishees/deductions

STP Phase 2 reporting has introduced the ability to report child support garnishees and deductions. Reporting though STP will remove the need for employers to provide separate remittance advices to the Child Support Registrar. However, you must still pay the required amounts directly to them by the date specified in your notice.

Reporting child support through STP is voluntary. If you choose to not report through STP then you will still need to report directly to the Child Support Registrar on an ongoing basis.

If you decided to report child support through STP, all you need is to select the appropriate child support deduction when you process a pay run.

Where the Registrar has given written notice to a payer to deduct a specified amount from a payee, payers are obliged to withhold money from payees and pay it to the Registrar. Where there is no written notice from the registrar, the child support deduction should not be used, instead use the Non Reportable Deductions and add the required description.

Income Types

Another new requirement being introduced in Phase 2 is reporting an income type for each payment made to an employee and, in some cases, a country code alongside that income type.

The 3 main drivers of reporting income types and country codes are as follows:

Please note:

Lump Sum Payments

There are some changes made to the lump sum payment reporting via STP Phase 2: