Employers should be gearing up as Phase 2 of the Single Touch Payroll (STP) roadmap commences. With the complex changes to payroll reporting commencing 1^st January  2022, employers should not underestimate the amount of work required for Phase 2 readiness.

Since 1^st July 2018, employers have been reporting payroll and superannuation information to the ATO on a real-time basis. As the next phase quickly approaches, employers need to gain an understanding of what STP Phase 2 means for them and outline a roadmap for implementation in their payroll activities.

Whilst, STP Phase 2 will pointedly increase the granularity of payroll information reported to the ATO, it is anticipated that it may reduce the compliance burden for employers’ manual reporting to other Government agencies such that when employees interact with government services, these changes will make that process easier.

The key changes include:

Breakdown of gross

With STP the majority of employee earnings are reported as gross wages. With Phase 2, employers will need to report payments in separate categories such as gross, paid leave, overtime, bonuses, director fees, lump sum payments and salary sacrifice amounts.

New information required for reporting

STP Phase 2 requires a list of additional employee and payment information to be provided to assist the ATO in identifying when payments should be taxed differently. Mandatory information includes:

• Employee commencement date, employment basis and tax treatment;
• Income types;
• Country codes for inbound and outbound employees;
• Employee termination, cessation date and cessation reason; and
• Lump sums of unused leave and employment termination payments.

What do I need to do?

We advise employers not to underestimate the amount of work required for STP Phase 2 readiness and should consider the following in order to prepare:

• Review the ATO’s Phase 2 Employer Reporting Guidelines to understand what the updates, how this may affect your organisation and reporting processes (including HR, onboarding, offboarding and payroll).
• If you are using a payroll solution check that they are ready with the new compliance requirements or the expected STP Phase 2 solution release date and whether deferrals has been obtained or is required.
• Xero have secured a deferral until 31 December 2022 due to the work they have undertaken on Covid-19 measures.
• Ensure that all new employee specific information and the disaggregated wages disclosures are correctly mapped.
• For multinational companies, the impact of STP Phase 2 should be considered in relation to cross-border payments (including the additional complexity of the shadow payroll arrangements and relevant mapping).

If you have any questions on STP Phase 2 or require assistance in preparing for the 1^st January 2022 deadline, do not hesitate to reach out to your ESV Engagement Partner.