Is your business ready for single touch payroll? This is an overview of the requirements to help your business prepare.
What is single touch payroll?
Single touch payroll (STP) is a reporting change for employers.
Employers will be required to report payments, such a salary and wages, PAYG withholding and superannuation information, directly to the Tax Office from their payroll software at the time they pay their employees.
STP does not change the underlying processing or taxing of payroll, but it does change what you need to report on and how often you need to report your payroll activities to the Tax Office.
When does the STP start? The start date for STP depends on the size of your business.
For employers with:
- 20 employees or more – STP reporting starts from 1 July 2018
- 19 employees or less – STP reporting starts from 1 July 2019.
You will need to do a headcount of your employees on 1 April 2018 to determine if STP applies to you from 1 July 2018 or from 1 July 2019. Employers with 20 or more employees are referred to as “substantial employers”.
Your employee headcount must include:
- Full-time employees
- Part-time employees
- Casual employees who worked in the month of March 2018
- Employees based overseas
- Any employee who is absent or on leave (whether paid or unpaid leave)
- Seasonal employees.Your employee headcount does not include:
- Independent contractors
- Labour hire staff
- Casual employees who did not work in the month of March 2018
- Company directors that are employees
- Company officeholders that are not employees
- Religious practitioners.
What is not impacted by STP?
STP will not impact:
- The structure of any employee remuneration payments, or
- Your pay cycle.It is a reporting mechanism only for your current payroll.
Introduction and penalties
The first 12 months of STP will be treated as a transitional period by the Tax Office. During this period, employers will be exempt from administrative penalties for failing to report on time. Penalties can however be administered in the first 12 months if the Tax Office has given an employer a written notice advising that a failure to report on time in future may attract penalties.
The Tax Office has advised a grace period will be provided for corrections to an STP report and, during this time, the employer will also be exempt from administrative penalties for making false or misleading statements.The timeframe for employers to correct errors varies depending on whether the employer is a small, medium or large PAYG withholder. If the employer has not corrected an error within the grace period, any outstanding false or misleading statements may be subject to penalties.The Tax Office is yet to clarify the grace period or penalties applicable for the various levels of employers.
What else will STP do?
Over time, STP will provide some administrative benefits, including:
- Employers will be able to meet their reporting obligations to the Tax Office when they pay their employees instead of running a separate process
- Details of salary and wages and PAYG withholding amounts will be prefilled on your activity statements at label W1 and W2 (you still have the ability to adjust or amend these figures, but the pre-fill may save you time)
- Large with holders will no longer have to report PAYG withholding on activity statements
- Employers may have the option to invite employees to complete TFN Declarations and superannuation Standard Choice Forms online
- Employers may not have to provide employees with payment summaries at year-end as the Tax Office will provide these details through MyGov
- Employees can access their tax and superannuation information through their MyGov account as information is reported by STP.
STP and superannuation guarantee
Superannuation reporting and superannuation guarantee contribution (SGC) requirements are an ongoing battle for a number of employers. The obvious question is therefore “will STP create any alarm bells or any audit signals for the Tax Office on SGC or non-payment of superannuation?”On discussing this matter with our payroll specialists, their view is “no it will not” because:
- Employers have the option of reporting either the superannuation accrued as a year to date amount for each employee OR as a year to date ordinary times earnings amount for each employee
- In 99% of cases, superannuation is shown on the payslip and that is what will be reported as part of the YTD super accrued figure (ie accrued, not paid)
- In addition employers do not have to separate out the employer SG component from any salary sacrifice amount in those reports – they just report one composite amount for superannuation
- Whilst employers will report the employees’ year to date gross payments, that figure is not broken down on an item by item basis – ie salary and overtime would both be reported as gross payments.Therefore, there is no data reported to allow the correct superannuation to be determined. Please also note that employers will not report the date actual amounts of super are contributed. This obligation has moved to the superannuation funds to report to the Tax Office.
What should I do next?
- Speak with your software provider
Given many clients use software for payroll processing, the most important thing to do is talk to your software provider now to ensure you are getting the necessary updates and payroll solutions to smoothly transition to STP. There are already suggestions that major retail software providers will not be updating standalone software products and will be encouraging clients to move across to cloud-based versions.We think it is critical that you know now which direction your software provider is heading in the event you may need to change products or upgrade versions prior to STP commencement dates.
- Choose an electronic payroll solution, if you do not already have one
If you do not have an electronic payroll solution, you will need to choose one that suits your business before the
commencement date. Unfortunately, this may force employers who maintain older versions of software to upgrade to new versions.
- Remember to do a headcount
On 1 April 2018, you will need to do an employee headcount to determine if you have 20 employees or more. This will determine when you need to start STP.
For many employers who already use accounting software with payroll modules, there will be little change in payroll processing for you. Your main priority will be to ensure your existing payroll software is being updated to meet the STP requirements, or consider upgrading your existing version of software to a version that does meet the STP requirements.
For those not using software to process your payroll, there will be important decisions to be made at a bookkeeping and processing level for your business.
Please feel free to contact Bentleys for more information.