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Is Your Business Ready for STP Phase 2? We’ve Got your Back!

Posted 9 Dec '22

Single Touch Payroll Phase 2 was designed to require businesses to report additional information to the ATO each time payrun is filed. Therefore, every business in Australia with staff members are required to comply with STP reporting requirements.

Notably, the government has provided businesses utilising Xero payroll an extension to 31 March 2023 to report their first STP Phase 2 payrun. We don’t recommend waiting that long, though, to get your information in order as once that deadline hits, the ATO will expect you to have it setup and ready to go.

Check out the changes you can expect through STP Phase 2 and what you can do to get a head start!

Changes You Can Expect

There are quite a few changes that you can expect to see with STP Phase 2 to provide for more detailed reporting to the ATO in new areas.

STP Phase 2 Changes:

  • Tax File Number Declaration: Before, you had to submit a tax file number declaration to the ATO. Phase 2 will incorporate the employee tax information through STP reporting, and that will then be submitted through your accounting software.
  • Income Type: You already report to the ATO the type of income your employees receive. Now, you will be asked to assign each amount you pay to an employee an income type.
  • Termination Reason: Business owners will be asked to provide a reason for termination. This will remove the need for an employment separation certification to be issued.
  • Paid Leave: Paid leave will no longer be included in your employee’s gross earnings because it will be reported separately as paid leave.
  • Allowance Types: Allowances in STP Phase 2 will all be reported separately across most income types. This means that allowances previously reported as gross will now be itemized into categories.
  • Director’s Fees: Does your business pay director’s fees? If so, they now must be separately included in your STP Phase 2 report to the ATO.
  • Lump Sum W Payments: Also known as “return to work” payments, this type of payment is paid to an employee to persuade them to resume work. This was previously reported as gross and not individually identified, whereas they now will be in STP Phase 2.
  • Tax treatment codes: Each employee will be given this 6-character code. These codes will tell the ATO about factors that can influence how much tax is withheld from employee payments.
  • Bonuses and Commissions: These payments will now be reported separately compared to before, when they were typically paid in a lump sum and reported as gross payments.
  • Lump Sum E Payments: A Lump Sum E is an amount of back pay accrued from a previous year. In Phase 2, these payments will be reported with the tax year they originated in, which will also remove the need to provide employees with a Lump Sum E letter.

Employer Reporting and STP Phase 2

Of course, your business’s transition will depend on your circumstances as well as the accounting software you use. Whether you use Xero, Myob, or even Quickbooks, you can begin your transition as soon as your STP reporting solution has been upgraded to offer Phase 2.

Conveniently, your payroll software will provide the step-by-step process of transitioning. However, as this will include remapping pay codes, employment types, and allowances, you may want to consider paying for someone to do this for you to ensure it is done correctly.

DIY Links

To help those out who want to do it themselves, please see the below links to provide more information dependent on the software you use.

Our STP Phase 2 Support

Our friends over at Empire Bookkeeping, have developed a service to support you with completing the updates required to your Xero file for STP Phase 2. For more information about our services, we invite you to contact our bookkeeping director, Natasha Spackman, who can tailor a solution for you.

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