The ATO is collecting more data with STP2 and expanding on digitisation.

Why is STP2 reporting hard to get right?

Previously, we shared 'STP 2 - How will the new reporting requirements impact your business?' Today, we explore the biggest business challenge in complying with STP2 - the data and the detail needed to ensure seamless reporting and compliance.

Why is accurate STP2 reporting essential?

Accurate STP reporting is important to ensure:

The information on your employees' income statement is correct.
Your employees' individual income tax returns can be prefilled with the right information by the ATO.
When you or your employees interact with other government agencies, they have the right information.

Incomplete or inaccurate STP reporting could result in incorrect treatment of your employee’s income for tax, super, and social security purposes.

The Data

How can STP2-compliant software ease the burden of reporting?

Automation: STP reporting requires employers to report salary, wages, tax, and superannuation information to the Australian Taxation Office (ATO) each pay cycle. This can be time-consuming if the data is in several systems and unavailable in a unified format. By using STP-enabled software like Access Definitiv, employers can automate the reporting process, reduce the administrative burden and ensure accuracy and compliance.

Compliance: STP reporting requires employers to comply with strict reporting obligations and deadlines. STP-enabled software is designed to ensure compliance with these obligations by providing a secure and reliable reporting platform that meets the ATO's requirements.

Accuracy: STP reporting requires accurate data. STP-enabled software ensures the accuracy of reporting by automatically validating data, checking for errors and inconsistencies, and providing alerts when discrepancies are identified.

Accessibility: STP-enabled software provides employers with real-time access to their reporting data, allowing them to monitor and manage their payroll obligations more effectively. This can be particularly useful for larger employers who need to manage multiple reporting obligations across different locations, entities, and jurisdictions.

In summary, the software is the key to STP 2 reporting because it provides automation, compliance, accuracy, integration, and accessibility. STP-enabled software helps employers streamline their data for reporting processes, reduce administrative burdens, and ensure compliance with reporting obligations and deadlines.

The Details

Why it's important to have a single point of contact?

The ATO requests a single point of contact from the employers, enabling employers to interact with the ATO directly from their payroll software. This feature is available in Single Touch Payroll (STP) enabled software, which allows employers to report salary, wages, and other related information to the ATO each pay cycle. An employer must give the contact person's name, phone number, and email address to the ATO. This replaces the ‘signature name for payment summaries’. The ATO has not clarified why this is necessary, but it is likely it will help resolve issues quickly.

What should you report for optional tax instalments?

An area that may not be clear is when an employee pays additional tax each pay period on top of their calculated tax instalment. Often employees opt to pay extra tax to accrue savings in the form of a tax refund. The reason for this is the Medicare Levy Surcharge, which is imposed on employees without private health insurance. Medicare surcharges and other voluntary payments must be reported separately in STP2.

What information is required to be reported for overseas employees?

Employers must obtain accurate country information from their overseas employees for STP 2 reporting. This information determines an employee's tax residency status and ensures compliance with tax and superannuation obligations. Employers should establish clear communication channels and processes to obtain this information and ensure that it is regularly updated.

Maintenance of Employee Information

A key benefit of STP2 is that the ATO always has up-to-date information about employees, whether they are casual or permanent and if they are employed by multiple employers. A six-digit code derived from other information is generated by payroll systems with STP2. The ATO uses this code to identify factors that can affect how much tax is withheld from employees. The code consists of:

Tax scale category
Options within each category
Study and Training Support Loan (STSL) status
Medicare Levy settings

Why is payroll complex in Australia?

Let's face it payroll is complex in Australia. Keeping up with compliance changes is challenging and time-consuming. In ‘The Quick Guide to Payroll Compliance 2023’ we highlight some of the changes businesses need to adhere to, which just scratches the surface.

Payroll in Australia is complex due to a number of factors, including:

Employment laws: Australian employment laws are complex and difficult to navigate. Employers are required to comply with a range of legislation, including the Fair Work Act, the National Employment Standards, and the Modern Awards.
Multiple tax rates: Australia has a complex tax system, with multiple tax rates and thresholds that change frequently. This can make it difficult for businesses to calculate the correct tax withholding for each employee.
Superannuation requirements: Australian businesses are required to contribute a percentage of each employee's salary to a superannuation fund. The rules surrounding superannuation can be complex, and failure to comply can result in penalties.
Reporting: Compliance reporting requires employers to report salary, wages, tax, and superannuation information to the Australian Taxation Office (ATO) each pay cycle. This time-consuming process requires expertise to ensure it is correct and timely so the business is not at risk.

How can you simplify your payroll processing and compliance reporting challenges?

The dependency on an expert as a 'key person' is no longer sustainable for many businesses. So, another feasible and cost-effective option is to partner with a managed service provider for payroll processing and compliance reporting; this is also known as outsourced payroll.

Outsourcing payroll processing and compliance reporting can be wise for businesses, especially those with limited resources or expertise in payroll and compliance matters.

What are the benefits of outsourcing payroll processing and STP reporting?

There are many benefits to outsourcing payroll processing and compliance reporting, some of which are:

Expertise: Outsourcing payroll processing and STP reporting allows businesses to tap into the expertise of professionals. The service provider stays current with the latest compliance regulations and requirements, ensuring businesses remain compliant and avoid penalties.
Time-saving: Processing payroll and compliance reporting are time-consuming for any business. Outsourcing frees up time for business owners and employees to focus on other aspects of the business, such as sales, marketing, and customer service.
Accuracy: Payroll and compliance reporting requires high accuracy, as errors can result in penalties or other legal issues. By outsourcing, businesses ensure their payroll and reporting are accurate, reducing the risk of errors and potential legal problems.
Cost-effective: Outsourcing payroll processing and compliance reporting is cost-effective for businesses of all sizes. Hiring a dedicated payroll expert is expensive, and outsourcing can reduce the cost of in-house resources.
Peace of mind: Outsourcing payroll processing and compliance reporting provides business owners with peace of mind, knowing that their payroll and compliance needs are being handled by professionals.
Smart: Overall, outsourcing payroll processing and compliance reporting is smart for businesses looking to save time and money while ensuring compliance and accuracy.
Peace of mind: Outsourcing payroll processing and STP reporting can provide business owners with peace of mind, knowing that their payroll and compliance needs are being handled by professionals.

To help you weigh up if you should stick with in-house or evaluate outsourcing your payroll processing and compliance reporting, read our eBook - Outsourced Payroll vs.In-House Payroll.

Partner with the industry's best.

Having a payroll software vendor you trust is essential to making sure your employees are paid on time and your business is compliant, but choosing a managed service provider ensures you are protected.

The Access Group was one of the first software vendors to be certified by the ATO as STP compliant in 2018. We have a proven track record of delivering accurate and compliant payroll software for over 35 years and have served as a member of the ATO's STP Phase 2 working group.  

Our Australian-based team ensures that all our customers comply with STP Phase 2.  