Dec 21, 2021 Matthew Hung

Are you ready for STP Phase 2?

Most employers will be familiar with Single Touch Payroll (STP), which is the way you report your employee’s payroll information to the ATO via a digital service provider (DSP), such as Xero or MYOB. To further streamline employer reporting obligations, an expansion of STP, also known as STP Phase 2, is on its way. It requires additional information to be reported which, as said by ATO, should already be captured in your payroll software.

DSPs have been working with the ATO to update their products to accommodate new reporting requirements. The mandatory start date is 1st January 2022. If your software is ready by then, you should start Phase 2 reporting. If however, your DSP has a deferral, they will let you know and you should start Phase 2 reporting when it is ready, or apply for more time if needed.

While your software is being updated, there are a few things you can do now to get prepared for the new changes. Let’s look at what the key changes are.

Disaggregation of gross

In the current STP system, only a single gross amount is reported. In Phase 2, you will need to break this amount down and separately report: gross salary, paid leave, allowances, overtime, bonuses and commissions, directors’ fees, lump sum W(return to work payments), and salary sacrificed amounts. Your software provider will advise you on how to implement this change.

Employment and taxation conditions

This includes details such as your employees’ employment basis, the information on their TFN declaration and employee termination details. They are currently reported in different ways and will be streamlined and included in STP Phase 2.

Income types

In STP Phase 2, you will also be required to assign each payment to a certain income type. There are a range of income types available, some of the common ones being:

  • Salary and wages (the most common category)
  • Closely held payees (payments to business owners)
  • Voluntary agreement (payments to certain contractors)

Country codes

A country code is required if a payment is made to an employee who is an Australian resident working overseas, a working holiday maker or an inbound assignee.

Now is a good time to review your current payroll system to identify information that is not currently being captured. You can contact our office for help on STP Phase 2, or refer to the ATO’s STP Phase 2 Employer Reporting Guidelines.