Single Touch Payroll: The burning questions
If you’re involved with payroll in any way shape or form, it’s highly likely you’ve heard about the legislative change, Single Touch Payroll.
Last year businesses that employed 20 or more employees were required to start lodging their pay events to the ATO. This year, on July 1, businesses with 19 or fewer employees will need to report. This means that essentially every Australian business will be reporting using STP.
Why is Single Touch Payroll being introduced?
Ultimately the intention of STP is to streamline reporting, and provide a more comprehensive view of the health of businesses. If you think of some of your clients, and let’s take a look at a micro business with fewer than 5 employees, there is likely only a very small percentage that would understand what their wage costs are versus gross profit and the implications to their business.
Without STP, it’s very hard to get these details.
What you’ll typically see is that business owners know what they’ve paid people. But there are lots of other components that you as the experts would know, like payroll tax reporting, workers comp, requirements around PAYG and monthly or quarterly reporting, as well as superannuation.
Businesses are typically looking at what they pay employees, but aren’t digging into the rest of the details such as gross profit and payroll is perhaps one of the largest costs to business outside of the cost of goods sold. Instead of seeing STP as a ‘feature’, think of it as a process rather than an outcome. The outcome won’t happen unless the process is right. And if you take one thing away from this article, it’s to focus on getting the process right. This presents an opportunity for advisors to help their clients out, getting the process set up correctly from the get-go, and understanding the compliance requirements.
After nearly a year of offering STP reporting to our 126k strong business base, we’ve learned a thing or two about the burning questions businesses have surrounding STP.
Let’s start with the questions.
So what exactly do I need to report on with STP?
There’s a really comprehensive breakdown of the above on the ATO website.
In a nutshell, STP requires employers (or their registered agent/intermediary) to report payments such as salaries and wages, PAYG withholding and super information directly to the ATO from their payroll system. This must be reported after every pay run has been finalised but no later than the employee’s payment date. It’s essentially what you would be reporting on at year end, but after each pay cycle.
Again, it’s about the process of setting up the business rather than the actual compliance piece for STP. Focus on getting the reporting, business tools right and then you and your clients will be in a strong position to understand the overall business profitability. This is essentially the purpose behind STP and why it came about.
What happens if I make a mistake with STP reporting?
If you’ve taken the time focusing on the setup process, then you’re less likely to make mistakes. However, mistakes still happen. The ATO won’t penalise you if you make a mistake in a lodged pay event. Rather than stressing, you simply need to adjust the next lodgement with the ATO.
- An employer needs to report data fixes within 14 days from when the issue is detected; or
- An employer may choose to report a fix in the next pay event for an employee where this is later than 14 days from when the error is detected. Additional time will be allowed to the next regular pay cycle for the employee. For example, monthly pay cycle; or
- An employer may report a fix in an update event.
Do I need to issue payment summaries if I’ve been reporting all year?
Employers who report and finalise employee payments (and amounts withheld from them) throughout the year in line with their payroll process, will not need to provide corresponding payment summaries to employees nor a payment summary annual report to the ATO.
Do employees need to know anything about STP?
It might save payroll managers, agents, or anyone responsible for processing pays quite a lot of future pain by communicating some of the changes, especially prior to the end of the tax year when they are looking to do their tax return and wondering why their employer hasn’t sent them their payment summary.
A quick checklist of what to communicate:
- If you want to access your payment summary, this will be available through a MyGov account. It’s easy to set up.
- myTax pre-fill: all the info you’ve reported via STP will be pre-filled for the individual employee who lodges their own tax return. The ATO will notify the employee when they can do their own return.
The benefits to employees:
- Employees will be able to access year to date tax and super info through myGov whenever they need it (proof of income for home loans etc)
- Can check if their super has been paid; will help Aussies get their full super entitlements
- Greater confidence in their pay cycles and award entitlements
If I use KeyPay’s pay run automation, do I need to lodge to the ATO separately or is this also automated?
In February this year, KeyPay introduced a new feature, Pay Run Automation, which allows payroll managers to do a configuration and set up triggers to pause a pay run automation. It’s completely flexible with full quality assurance.
Automating pay runs allow users to not have to perform the pay run action themselves. Rather, the system does it automatically in the background. You can choose what components of a pay run you want to be automated and what components still require manual intervention.
If you choose to lodge the pay event with the ATO, the selected user will be notified by email that the pay event is finalised and that they will now be able to lodge with the ATO. We don’t automate this process as it requires a signed declaration form which we cannot do on behalf of a user. Likewise, external parties lodging pay events on behalf of their clients must obtain approval in the form of a Client Authority. Again, this is something we cannot do on behalf of the business.
How does STP work within KeyPay if I’m a registered BAS/Tax agent?
You and your client will need to complete an STP engagement authority declaration, which is an annual requirement. This is only for STP, not other forms such as BAS etc.
Each time an STP pay event is lodged it requires the following:
- a declaration that the information contained in the approved form (the STP pay event or update event) is ‘true and correct’
- the declarer is authorised to lodge the approved form.
KeyPay automatically checks the authorisation, so when a pay event is getting ready to be lodged, we check that we have appropriate authorisation. This can either be:
- A standing authorisation – if the pay run is basically the same every week, the client can sign some sort of standing authorisation that they give to the tax agent. This saves the tax agent from getting the client to authorise each pay event.
- If you are lodging as the employer, then you can authorise while you are lodging.
- If you are lodging as a tax agent, then you can request authorisation from the employer. This sends them an email and they need to log in and authorise it. This would happen for each pay event.
Get ready for Single Touch Payroll
As mentioned, Single Touch Payroll is a legislative change that is streamlining payroll reporting – and it’s nothing to worry about! KeyPay has been Single Touch Payroll ready since July 2018 and over 30k businesses reported through STP with KeyPay in July alone.
Looking to find out more about how KeyPay has prepared for STP Phase 2? Take a look at our support articles.