Simplified payroll reporting and STP Phase 2: employers take note

While Single Touch Payroll Phase 2 (STP Phase 2) started on 1 January 2022, many digital service providers have a deferral in place to enable them to transition their customers over time. Under STP Phase 2, businesses report certain information directly to the ATO through their payroll software, such as:

• details of the remuneration they pay (eg salary and wages to employees, directors' remuneration);
• details of PAYG withholding, including how the amounts are calculated; and
• superannuation liability information.

STP Phase 2 doesn't change which payments employers need to report through STP, but it does change how those amounts need to be reported.

Employers need to take note that STP Phase 2 changes require their input with two key actions:

• Employers need to ensure their payroll setup is accurate, specifically the reporting codes.
• They need to carefully review their payroll reporting codes to ensure accurate data submission to the ATO through STP. This will improve the accuracy of data submitted to the ATO via STP.

Employers will now start to see BAS data pre-filling by the ATO, and it’s important they cross-check the pre-filled information with their payroll records to prove the correct data has been submitted to the ATO and ensure correct withholdings are remitted. This verification process is essential for identifying and rectifying payroll setup errors. Any anomalies an employer identifies may highlight errors in their system configuration.

Understanding salary sacrifice reporting

STP Phase 2 requirements of reporting employee year-to-date (YTD) amounts have evolved. In STP Phase 1, only post-sacrificed amounts were reported, but STP Phase 2 mandates the separate reporting of pre-sacrificed amounts: 

• Type S: This denotes amounts sacrificed to superannuation. Type S amounts may also be considered reportable employer super contributions (RESC) and the ATO stresses that it is important to remember that salary sacrifice type S and RESC are different things and used for different purposes.
• Type O: This indicates amounts sacrificed towards other benefits. For example, this could be reportable fringe benefits amounts (RFBA). Note that if an amount is both salary sacrifice type O and an RFBA, the employer needs to report both the amount of salary or wages which was sacrificed as salary sacrifice type O, and the grossed up taxable value of the benefits as RFBA.

Different payroll solutions have different ways of setting up and displaying salary sacrifice amounts, so employers should refer to their product's guidance.
Unchanged activity statement requirements

While STP reporting has changed, activity statement requirements remain unchanged. Employers should report only post-tax sacrificed amounts under label W1 and avoid including pre-tax sacrificed amounts at this label.

ATO pre-filling

The ATO aims to simplify reporting by pre-filling labels W1 and W2 on activity statements. This data comes from employer-level totals reported through STP, streamlining the process and enhancing precision.

Don't forget that when an employee leaves, information must be provided in the employer's STP Phase 2 report – for example, the employment cessation date and the correct code indicating why the employee left. Details of termination payments must also be reported to the ATO.

Maintaining compliance and precision in payroll reporting is paramount for employers.