What is Single Touch Payroll?
As accountants & tax specialists in Sydney & Australia, we at Silver Peacock have been receiving numerous inquiries about the new Single Touch Payroll (STP) & naturally, some business owners have a lot of questions about how this will impact them, whether or not this applies to certain businesses and if Silver Peacock can provide any support services.
The principal accountant of Silver Peacock has prepared this article in the hope of addressing many of the questions that we have been receiving. However, if you still have any questions after reading through this article, please contact Silver Peacock and one of our accountants & tax specialists will assist you.
To ensure the accuracy & reliability of information, Silver Peacock used public information on ATO platforms with the hope of assisting you gain a better understanding about STP, your obligations in order for you to be compliant with the ATO.
Single Touch Payroll (STP) Definition
The Australian Taxation Office (ATO) has introduced a new way of reporting taxation and superannuation information to the ATO. This new system is called STP.
Who will this apply to? And how often will the reporting occur?
This new system will apply to all companies with employees on the payroll. The STP reporting will send the employee’s tax and superannuation information to the ATO each time the employer pays the employees.
Therefore, if the employer pays the employees weekly, the STP reporting will be weekly, if the employer pays the employees on a fortnightly, then the STP reporting will be fortnightly, and so on.
The tax and superannuation information will be sent to the ATO through the software system that is used to process the payroll for the employee. However, if an employer is using a system that does not have this feature/function, a solution is necessary as this reporting is mandatory/compulsory or alternatively.
When will the STP start from?
STP reporting will depend on the number of employees the company employs:
- Employers who employ 20 or more employees should already be reporting now through STP since 1 July 2018, or at the very least should have applied for an extension for a later start.
- Employers who employ 19 or less employees will need to start reporting through STP from 1 July 2019. Additional options may be available for certain businesses, however, this will be on a case by case basis and you need to get in touch with on of the accountants at Silver Peacock.
How will the STP reporting occur?
STP reporting is currently available through payroll, accounting and business management software. Most software providers are offering STP-enabled products. Some providers have asked us for a later start date (a deferral) for their employer clients to report through STP. If you’re not sure whether your software has a deferral, check with your provider.
When you start reporting:
- you will run your payroll, pay your employees as normal, and give them a payslip
- your pay cycle does not need to change (you can continue to pay your employees weekly, fortnightly, or monthly)
- your STP-enabled payroll software will send us a report which includes the information we need from you, such as salaries and wages, pay as you go (PAYG) withholding, and super information
- see our employer reporting guidelines for a full list of payments that must be reported through STP.
You will be reporting super liability information through STP for the first time. Super funds will also be reporting to us. They’ll let us know when you make the payment to your employees’ chosen or default fund. This is an important step toward making sure employees are paid their correct entitlements.
The way STP information is sent will depend on the software you use. STP reporting will be offered in one of the following ways with:
- an end-to-end solution, which allows you to run your payroll and send the STP information directly to us from your software
- a solution which allows you to run your payroll and send the STP information through a third party sending service provider (SSP) which is integrated into your software
- a solution that allows you to run your payroll and requires you to send the STP information through a third party sending service provider (SSP) outside your software.
ATO systems will match the STP information to our employer and employee records.
Your employees will be able to see their year-to-date tax and super information in ATO online services, which can only be accessed through myGov. Their data is updated every time you report (each pay day for most employers). Without STP reporting, employee data is only reported at the end of the financial year.
If you make mistakes in your STP report, you can correct it in your following report. We won’t penalise you for making mistakes you correct.
At the end of the financial year, you’ll need to finalise your STP data. This is a declaration to the Commissioner to state you have completed your reporting for the financial year.
You will no longer have to give your employees a payment summary for the information you’ve reported and finalised through STP. Once you finalise your data, your employees or their registered agent will be able to lodge their income tax return using the STP information available in ATO online/
You will no longer need to provide us with a payment summary annual report (PSAR) at the end of the financial year for the payments you report through STP.
From 2020 we will pre-fill activity statement labels W1 and W2 for small and medium withholders with the information you report to us through STP. If you currently lodge an activity statement you will continue to do so.
If you’re not sure if STP applied to you during the 2018–19 financial year, you can do a headcount (not a full time equivalent) to check if you had 20 or more employees.
Employers with 5-19 employees (small employers)
The parliament has passed legislation to extend STP to include all employers from 1 July 2019.
This will be a gradual start, and not all employers will start reporting at the same time.
Determine when you need to start reporting from one of the following options.
Start reporting early. If you use payroll software which offers STP, you can update your product and start reporting any time. Talk to your software provider, or visit their website, to find out what you need to do. See our checklist for some important steps you need to take to connect your software to the ATO.
Apply for more time to get ready. If you won’t be ready to start reporting by 30 September 2019, use our online form to apply for a deferred start date. The form will be available from April 2019.
Ask us for an exemption if you meet the criteria. If you live in an area with intermittent or no internet connection, you can use our online tool to apply for an exemption. This will be available from April 2019.
Employers with 1-4 employees (micro employers)
If you have four or less employees (micro employer) and you don’t currently use payroll software, there will be other ways to report STP information.
The ATO have asked software developers to build no-cost and low-cost STP solutions for micro employers – including simple payroll software, mobile phone apps and portals.
You will also have the option to report your STP information quarterly, rather than each time you run payroll through Silver Peacock. This option will be available until 30 June 2021.
Employers with closely held payees
A closely held payee means the payee is directly related to the entity from which they receive payments, for example:
- family members of a family-owned business
- directors or shareholders of a company
- trustees or beneficiaries of a trust.
Employers may not always pay closely held payees a regular salary or wage, and instead, may draw on income from the business throughout the year. As STP information is reported each time payroll is run, employers would not be able to report their closely held payees this way.
If you’re an employer with closely held payees, there are flexible reporting options available to you.
Employers with 19 or less employees do not need to report closely held payees in 2019-20.
You will be exempt from reporting closely held payees during this financial year. However, all other employees (arms-length employees) must be reported through STP from 1 July 2019, or a deferred start date if one has been granted.
You don’t need to apply for the exemption for reporting closely held employees.
You will be able to lodge payment summaries for closely held employees up to the due date of your 2019 income tax return. Silver Peacock will know your due date.
Employers with 19 or less employees can report closely held payees quarterly from 1 July 2020.
You will have the option to report closely held payees quarterly from 1 July 2020 – after the exemption period.
This report will be due at the same time as your activity statement.
You will need to make reasonable estimates each quarter of the amounts paid to closely held payees. You can calculate these amounts using one of the following methods:
- actual withdrawals (not including payments of dividends or which reduces the liabilities owed by the business entity to the closely held employee)
- 25% of the salary/director fees from the previous year per quarter
- vary the previous years’ amount (to take into account trading conditions) within 15% of the total salary for the current financial year.
These methods are the same as the way you would calculate pay as you go (PAYG) instalments.
If you choose to report closely held payees quarterly, you will have up to the due date of your income tax return to finalise the information you’ve reported and make any adjustments.
Employers with 20 or more employees have extra time to finalise closely held payees information.
Once you start STP reporting you should be reporting closely held payees along with arms-length employees, however:
- you will have until 30 September 2019 to finalise closely held payee information
- this is in line with the concessional payment summary annual report (PSAR) lodgment date.
How to report Single Touch Payroll (STP)
You can send STP data to us in one of the following ways.
Option one: Report through existing payroll or accounting solution
You can report from your existing payroll or accounting software if STP reporting is available.
- Contact Silver Peacock to find out how they offer STP and what you need to do to update your product.
Option two: Choose STP enabled payroll software
You may need to choose payroll software if you do not currently use it or your current software provider is not offering an STP-enabled product.
Some providers are not updating their older products, such as those purchased off-the-shelf.
If you have four or less employees, and you do not need payroll software, you can use an alternate solution (see option four).
- Contact Silver Peacock to find out which payroll software product would best suit your business needs.
Option three: Ask a third party to report on your behalf
You can ask a third party, such as a registered agent or payroll service provider, to report on your behalf.
It is your obligation as an employer to make sure they will be reporting through STP.
Contact Silver Peacock to discuss your options. One of the accountants at Silver Peacock will be able to report through STP for you, or work with you to outsource your payroll through Silver Peacock.