Single Touch Payroll Phase 2 (STP Phase 2) will become mandatory for all businesses from 1 January 2022, bringing a host of changes that will fundamentally change the visibility of the information reported to the Australian Tax Office.

The ultimate aim of STP Phase 2 is to make it easier for companies to comply with their obligations, while also providing better access to governing bodies to identify and rectify potential errors in payroll.

This information will be shared real time with other government bodies, including Fair Work Australia, who can data match using their own algorithms. Under STP Phase 2, if something looks off, the relevant bodies can raise a ticket to commence an audit into your organisation. Certainly in the teething period of STP Phase 2, we expect to see more of these audits conducted.

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Payroll is complex

In Australia there are more than 100 industry or occupation awards, as well as employer requirements around superannuation, and benefits like fringe tax benefits, bonuses and commissions. Many of the decisions that go into remuneration come down to company definitions and assumptions – it’s a judgement call based on the legislation in front of you.

From 1 January 2022 there will be cost implications of those definitions and assumptions if a discrepancy has been found between what you are paying versus what you should have been paying.

This is already being played out in the high volumes of recent Superannuation Guarantee reviews in response to the complexity of paycode classification and the misunderstanding of responsibility between employers and their payroll providers, coupled with the visibility of data available to employees through their MyGov accounts.

Another close parallel is the focus on payroll assurance which has also resulted in some of the nation’s largest States criminalising wage theft. In all of the reviews we have conducted around payroll assurance and Superannuation Guarantee, the number one factor in getting it wrong is human error. Our experience with payroll assurance suggests that an audit could go back as far as a decade if an error is suspected.

What are the key changes?

 STP Phase 2 will significantly increase the transparency of this information with the disaggregation of gross salary to include;

  • Bonuses and commissions
  • Allowances
  • Directors fees
  • Overtime
  • Paid Leave
  • Salary Sacrifice

In addition to the above, there will be further dissemination of allowance and leave types as well as employment conditions including, employment basis (Casual, F/T, P/T etc), tax treatment and cessation of employment reasons.

The ATO are also introducing country codes, foreign tax reporting and residency classification as part of broader tax scrutiny.

Read our last alert on the changes to STP Phase 2.

 

Ensure compliance by 1 January 2022

Going forward, you will be asked to provide more comprehensive information, which may require data cleansing to achieve the level of disaggregation outlined by the ATO.

The larger and more complex the organisation, particularly if payroll is conducted by decentralised systems across your business, the sooner you should commence preparations. We strongly suggest starting now to update and test your data and systems before the 1 January 2022 deadline.

Questions to ask your organisation

With the rollout of STP Phase 2 employers need to be certain that their paycodes have been set up correctly or face the risk of data matching led audits.

  • Are you confident you are paying correct employment taxes and superannuation?
  • Have you reviewed your manual and automated payroll process and controls across your employee life cycle? (from on boarding to termination)
  • Have you validated pay code configuration to ensure compliance for PAYG withholding and superannuation?
  • How can you update and test your data?

How we can help

Your payroll provider will be reaching out to you shortly to start the process of obtaining the payroll breakdowns and employment tax reporting treatment in order to be STP Phase 2.0 ready.

Our experts, through our own reporting template or working with your payroll providers reporting template, can undertake a review of reporting and judgement to identify key risk areas. 

This includes:

  • Reviewing and ensuring the paycodes have correctly been identified as Ordinary Time Earnings for the purposes of Superannuation Guarantee.
  • Considering how the treatment of the employment basis (Casual, Part time, Full time) may impact the Superannuation Guarantee and PAYG withholding requirements
  • Review of income type and country codes and the incorporation of foreign tax withholding.
  • Further consider the State Payroll tax treatment of paycodes, which may be utilised by the state payroll tax offices as part of their data matching compliance tool.
  • Review in more depth areas such as the classification of termination payments and working with employment lawyers for the purposes of mapping EBA’s to the new paycode categories.

We have deep experience and tools available to best advise you on how to prepare for STP Phase 2.0. By investing now in your data, and the systems and processes to manage the evolving employment obligations landscape, you will set yourself up for long-term success.

Thank you for your enquiry

We will be in touch with you shortly.

For more information please contact:

Thomas Isbell
Thomas Isbell
Partner
Sydney
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George Bendall
George Bendall
Partner
Brisbane
View full profile

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