With Single Touch Payroll (STP) Phase 2 having been in place for more than a year for some employers, the ATO has now identified common mistakes to avoid for employers that are currently entering into the system after the expiration of their deferrals. These common mistakes relate to pay codes, continuity of year-to-date (YTD) reporting, employee details and employment basis reporting. In addition to employers reporting more detailed information under Phase 2 than STP Phase 1, the ATO will also receive information from super funds.
STP was introduced as a way for employers to send super and tax information directly to the ATO through the use of STP-enabled software solutions. STP Phase 2 is now in full swing, having commenced on 1 January 2022. It requires more detail on the amounts reported through STP; for example, salary sacrificed amounts must be reported separately under STP Phase 2.
In addition to employers reporting more detailed information, under Phase 2 the ATO receives information directly from super funds. When employers make a super payment to their employees’ chosen or default funds, the funds will send this information to the ATO so it can be matched with the STP information from the employers to ensure that the correct entitlements are being paid.
The ATO has now identified common STP Phase 2 mistakes to avoid for employers currently entering into the system. These relate to pay codes, continuity of YTD reporting, employee details and employment basis reporting.
In relation to pay codes, the ATO has noticed that some employers have failed to set up the codes correctly and to ensure that payments including allowances, paid leave and overtime are itemised separately. Another issue the ATO has noticed is employers selecting “not reportable” or “do not report to the ATO” incorrectly. Generally, all amounts paid to employees should be reported, and the “not reportable” or “do not report to the ATO” options should only be selected for travel allowances below the ATO’s reasonable amount thresholds, overtime meal allowances below the ATO’s reasonable amount reimbursements, and post-tax deductions (except for those separately identified).
For employers that transitioned to STP Phase 2 part-way through the financial year, they need to ensure that continuity of YTD reporting is maintained unless the replacing payroll IDs method is used. This varies with the different software solutions used; some will transition to the amounts automatically, while others may require manual input of YTD amounts. Employers should be aware of which one is required by their software provider. The ATO suggests comparing the first STP Phase 2 report with the last STP Phase 1 report to assist in maintaining the correct figures.
As tax time approaches, the ATO also emphasises the importance of having the correct employee information such as names, tax file numbers and dates of birth transitioned into STP Phase 2. Employers also need to report accurate information about their employees’ employment basis (eg full-time, part-time or casual) each time the payroll is run.
Specifically, however, the ATO has identified a common issue where the employer omits the cessation date and reason for leaving when an employee’s employment ends. In general, it notes that under Phase 2, employers should be reporting a cessation date and reason for an employee when there are also payments that are connected to termination (eg employment termination payments, unused leave termination, lump sums). This information will flow through to Services Australia and help streamline interactions with the employee.
Under STP Phase 2, employers are also required to report a country code when payments are made to employees who derive foreign employment income, are inbound assignees to Australia or are working holiday makers. The country refers to the home country of the individual, and differs depending on the type of income. The ATO has noticed employers using the code “na” to denote “not applicable” in these instances; however, “na” has been assigned as the country code for Namibia and should not be used unless the employee is either working overseas in Namibia or is from Namibia.
While most employers would be used to having to report more detailed information under STP Phase 2, some smaller employers or those with deferrals may still be coming to grips with the different pay codes, classification of different allowances, or having issues with correctly transitioning YTD amounts.
Source: www.ato.gov.au/Business/Small-business-newsroom/Employers/How-to-get-your-STP-Phase-2-reporting-right/
www.ato.gov.au/Tax-professionals/Newsroom/Lodgment-and-payment/Getting-STP-Phase-2-reporting-right/