Client impact statement: Single Touch Payroll Phase 2 now deferred
The Australian Taxation Office has implemented a mandatory start date of 1 January 2022 for employers to commence additional reporting under Single Touch Payroll (STP) Phase 2. However, recent announcements by the ATO have stated that employers will not be penalised as long as they start reporting under Phase 2 before 1 March 2022.
Single Touch Payroll Phase 2
If an employer has STP software which can enable them to provide additional reporting under Phase 2, the ATO is encouraging them to do so.
Single Touch Payroll Phase 2 makes employers provide additional information with their payroll reports to the ATO. This is intended to:
- reduce the reporting burden for employers who need to report information about their employees
to multiple government agencies, and
- support the administration of the social security system.
There are 3 main additions in STP Phase 2, being the disaggregation of gross income, further details around withholding for each employee and reasons why an employee leaves.
Reporting of gross income
The main change for STP Phase 2 is that employers will have to separate amounts paid to employees by different income types in payroll reports. The intention to inform the ATO of the different payment types is to help them identify:
- when payments are taxed differently, or
- whether concessional or external factors are present in PAYG withholding.
Instead of reporting a single gross amount for each employee each payroll report, under STP Phase 2 an employer will separate payments into:
- gross earnings
- paid leave
- bonuses and commissions
- directors’ fees
- lump sum W, and
- salary sacrifice.
Salary sacrifice amounts were formerly reported as “post-sacrifice” amounts. Now, the ATO wants to be notified of “pre-sacrifice” amounts earned by employees. Separate reporting for salary sacrificed amounts will need to be split further into superannuation amounts, and other employee benefits sacrificed. Examples of “other” employee benefits include novated leases, airline lounge memberships and portable electronic devices.
Tax treatment codes for employees
Under STP Phase 2 an employer will be required to report information about their employees’ employment basis as it relates to tax and PAYG withholding. This intends to provide consistency for the ATO to administer withholding amounts and understand individual taxation circumstances.
With each payroll report, each employee will have a 6-character code attached. The first character is based on the type of employee for withholding purposes, with the following 5 characters being specifics on withholding amounts.
The majority of employees will come under the first category of “R – Regular”. From here, withholding rates may change based on whether the employee is claiming the tax-free threshold, has study loans or has a Medicare adjustment.
For example, an individual employee may have a code “RTS1XX”, with the code representing:
- “R” for regular employee
- “T” for claiming the tax-free threshold
- “S” for additional withholding on a study or training support loan
- “1” for additional withholding for Tier 1 of Medicare Levy Surcharge, and
- “XX” being no additional adjustments for a Medicare levy exemption or reduction.
A full list of employee codes is available on the ATO website here. Other than regular employees, different designations exist for workers such as working holiday makers, foreign residents, those with no TFN declared and individuals under a voluntary agreement.
Cessation of employment
Under STP Phase 2, an employer must inform the ATO of when and why an employee leaves. This additional information will mean that an employer is not necessarily required to produce an employment separation certificate for social security purposes.
Some employees may have a termination payment as part ending their employment. This will be reported in STP Phase 2 under the reporting of gross income and tax treatment codes.
However, other reporting will also be necessary. This includes providing a specific cessation date of an employee, as well as a cessation reason. The cessation reason can either be voluntary cessation, ill health, deceased, redundancy, dismissal, contract cessation or transfer.
If you would like to discuss your single touch payroll obligations, please contact us.