For decades, employers reported their employee earnings to the ATO after each financial year had ended. Soon, that will all change dramatically as employers will need to report payroll transactions to the ATO and superannuation funds when they occur… and year reporting will be consigned to history.
Parliament has now passed legislation to extend Single Touch Payroll (STP) reporting to include all small employers (those with fewer than 20 employees) from 1 July 2019. STP is pay day reporting by employers to the ATO as it happens, this reporting having started on 1 July 2018 for large employers (20 or more employees).
With STP, payments such as salaries and wages, pay as you go (PAYG) withholding tax and superannuation information will be transmitted as and when they happen (i.e. each payroll cycle) and it all must be done through a payroll system that is STP compliant. By providing information to the ATO on a real time basis, employers will no longer have to prepare year end PAYG Payment Summaries for employees. Further, employers’ monthly or quarterly (whichever applies) activity statements will be prefilled with relevant payroll information.
As STP will operate in real time, employees will be able to access their own payroll information via their portal to the myGov website. STP will also allow the ATO to identify those employees with multiple jobs that are claiming multiple tax-free thresholds. Presumably, the ATO will then advise the relevant employers to adjust their tax withholdings for employees that are inappropriately claiming the additional thresholds.
The STP system will provide the ATO a better opportunity to scrutinise and target non-compliant employers. However, real-time reporting of payments, by extension, could also mean real-time error reporting. At the moment, STP does not require an explanation of variances by the employer as instead, year-to-date amounts will be over-ridden each pay cycle… which is good, because we don’t live in a perfect world.
The STP system will also allow the ATO to ensure greater Super Guarantee Contribution compliance, as super payments will be automatically reported to the ATO. The ATO will know sooner those businesses that are defaulting on their super obligations allowing the ATO to take action against employers sooner.
Small business, which mostly use manual payroll systems with paper reporting to the ATO after year end, will not have much time to adopt new technology, get trained and change their payroll practices.
Are you ready for STP? The ATO advises it is doing its best to smooth the transition for business however; they are also quick to state the responsibility for STP ultimately rests with employers. If STP is a new concept to business owners/managers, the following action needs to be taken:
- If you are a business that outsources its payroll function, you need to discuss with your payroll software provider to find out if their payroll software is STP compliant. If your payroll services provider is not ready, they can apply to the ATO for a deferral and will be given a Deferral Reference Number (DRN). Your payroll provider will then make the DRN available to you and you can quote it to the ATO when advising of any delay in commencing STP;
- If you are a business that undertakes its own payroll function, you need to change your processes bu adopting a software provider that uses STP compliant payroll software. There are an increasing number that do, including Xero which is the platform we prefer for small business.
Written by Chieftains an accounting firm that exists to help business owners increase profits and reduce risks allowing them to astutely provide for their retirement.
This article is for guidance only, and professional advice should be obtained before acting on any of its contents. Neither the publisher nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication. Liability limited by a scheme approved under Professional Standards Legislation.