Single touch payroll (STP) is a government initiative requiring employers to electronically report payroll information such as tax and superannuation to the Australian Taxation Office (ATO) each payroll cycle.
In Australia, all employers are obligated to report their payroll information to the ATO. Therefore, the development of this STP payroll software was implemented to minimise the burden on employers of having to report to multiple government agencies.
So, if you’re thinking of starting a business and wondering, “what is single touch payroll?” then we have broken it down for you so you can focus on what you do best.
How Does Single Touch Payroll Work?
Single touch payroll (STP) is an online accounting software used to send employee salary or wage, PAYG and superannuation details to the Australian Tax Office each time the employer pays them. Depending on your current situation, there is a process involved in using the STP software.
- If you are already using STP enabled software, it already produces ATO-compliant reports that you can just upload and submit.
- If the website or software provider you use doesn’t produce reports in the ATO’s required format, you will have to convert your reports to be able to submit them.
- If you still work manually using pen and paper, you will have to find a third-party service to capture and convert the data into the required digital format.
STP is mandatory, but a business may apply for a deferred start date from the ATO if they need more time to switch over to an eligible payroll system or software.
An exemption may be awarded to businesses for different reasons, such as those in areas that experience bad or no internet connection.
Employers with a withholding payer number (WPN) need to start STP reporting from 1 July 2022.
Businesses with four employees or less may be eligible to use the $10 per month STP solution vetted by the ATO.
Why is STP Reporting Beneficial for Employers?
If you are feeling discouraged about having to use this system, here are some reasons why it could be beneficial to you that might change your mind:
- Previously, employers had to manually lodge their payroll data to the ATO via paper submission. This was to be done once a year by the deadline of 14 July.
- Single touch payroll is automated so that when employers pay their employees every week, fortnight or month, they submit the payroll information to the ATO simultaneously, combining both actions into one simple process.
- Sharing payroll information with the ATO is now much easier and more streamlined, and by submitting the information in small bites rather than everything in one go annually, it can reduce the chance of administrative errors.
- In addition, having real-time access to the latest data and data of months and years passed at the click of a button allows for better-informed business decisions.
- Employers no longer need to produce payment summaries. They are viewable by employees online at myGov.
- Single touch payroll software saves time in many aspects, especially for employers during the valuable end of financial year period. And, new employees can be onboarded quickly and easily using online commencement forms like Tax File Number Declaration or SuperChoice.
Why is STP Reporting Beneficial for Employers?
Additionally, your employees can benefit from you using this system, too:
- Employees don’t have to wait until the end of the financial year to be able to access their tax and super information. The myGov website keeps a record of year-to-date data that is accessible at any time.
- Because all employee STP reporting is now available online via the ATO, employees (or their registered tax agent) can easily access that information via an income statement to lodge their income tax returns.
- The payroll information is pre-populated in the tax return, so it’s quicker and easier to complete without having to wait for employers to provide a payment summary.
- Employees can also access electronic commencement forms, a pre-populated Tax File Number Declaration and SuperChoice form, so starting a new job is much easier.
When Did Mandatory Single Touch Payroll Take Effect?
- On 1 July 2018, the ATO declared that businesses with 20+ employees must report payments of salaries and wages, PAYG withholding and superannuation information using the STP software. Small businesses with 19 employees or less only had to report employee wages and superannuation at the end of the financial year.
- On 1 July 2019, small businesses with 19 or fewer employees were obligated to follow suit and start STP reporting.
- On 1 July 2021, the window in which most of the concessions awarded to different businesses experiencing exceptional circumstances has ended. So, employers with a concession need to have started reporting each employee payment through STP by now.
Any business that hasn’t started reporting employee information through STP should make arrangements to start reporting immediately as penalties may apply or apply for a deferred start date if needed.
What is the Future of Single Touch Payroll Software?
On 1 Jan 2022, STP phase 2 reporting will come into effect.
Phase 2 requires additional information to be reported to the ATO that will help other government agencies leverage the software infrastructure to support the social security system administration.
STP phase 2 will also include provision for the lodgement of:
- allowances,
- cessation details,
- child support deductions,
- country codes,
- employment basis,
- lump sums,
- overtime,
- paid leave, and
- salary sacrifices.
Employers will have to separately itemise the elements making up the gross amount, such as:
- allowances
- bonuses,
- directors fees,
- overtime
- paid leave, and
- salary sacrifices.
Key Takeaways
Single touch payroll (STP) may seem overwhelming and like a big change to get used to in the beginning, but it was only implemented by the Australian Taxation Office to make everyone’s lives easier.
Many software providers are STP compliant, and if not, a third party like KNS Accounting Services can step in and convert the reports into the correct format for submission.
- STP benefits employers by making payroll submission to the ATO quicker and much easier to access. The software process saves valuable time, and payment summaries are no longer necessary.
- STP benefits employees because they can access their tax and super information at any time so that they can lodge their income tax returns.
STP Phase 2 reporting will commence on 1 Jan 2022, and this update will require businesses to report additional employee information to the ATO.
If you need any assistance with your payroll obligations as per the ATO’s instruction, KNS can help you through the process. Contact us today to get started as soon as possible and reduce the change of penalties for non-compliance.
Disclaimer
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.