Definitiv Single Touch Payroll (STP) Phase 2

One of the key areas of change relates to the values that were previously reported in Gross.

If you have been following the latest ATO updates on the new reporting requirements for STP2 you will have started to learn terms such as Disaggregation of Gross, Tax Treatment, Income Types to name a few. A comprehensive overview can be found within The ATO Employer Guidelines.

IMPORTANT CHANGE: The values paid to an employee now are to be ‘dissected further’ into groupings that both Services Australia and the ATO need. Hence the new requirement to ‘Disaggregate’ the Gross value currently reported.

STP2 is heavily based on this new requirement to ‘Disaggregate the Gross' value you are currently reporting. The new changes follow similar reporting that can be displayed on an employee’s pay advice.

EXAMPLE: When paying an employee, it’s not just a gross value that is shown, the various components of pay that the employee is being paid need to be provided so that the employee is able to understand what they worked and are being compensated for.

We have included are a few examples in this Quick Start Guide to assist in understanding how to approach STP2 changes.

What employers should consider

It is always good practice to review how your business constructs payments for employees. We recommend you specifically start to review Allowances.

To better understand the new changes that may affect how you need to report for STP2, we recommend you refer back to The ATO Employer Guidelines which provides great examples.

There are new categories and changes to definitions that have been introduced for STP2. You will start to notice that simple categorisation of allowances is no longer sufficient, as previously in STP1 most allowances were reported in Gross with only a few reported separately.

There are now 9 separate categories for allowances. A couple of new ones have been introduced which are Qualification and Certification allowance and Task Allowance.

IMPORTANT CHANGE: Instead of categorising an allowance on ‘what’ is being paid, we need to consider 'why' it is being paid. This is important as the data that is sent for STP2 reporting is required by Services Australia to be analysed for a wide range of varying benefits that they calculate for many differing situations, and ‘why’ is now important – not because of its description or how it is taxed; hence there are new categories to consider.

EXAMPLE: If we use a First Aid allowance as an example

• On the surface, this allowance looks to be paid because the employee has a first aid qualification and is the nominated First Aid person in your company.
• The core requirement for First Aid Allowance is for performing duties and not just based on having the First Aid qualification and therefore it would be categorised as a Task allowance and not as a Qualification allowance.

This is a very clearly explained example in the ATO’s Employer’s Guide – under Allowances.

DECISION: Using the example above – familiarise yourself with the Allowances section of the ATO’s Employers Guide and review your Allowances in your system and see if you can work out which categories they will fall into.

Where unsure; you may have to seek further clarification from your own employer contracts, potentially Fair Work Awards or an Employment lawyer.

What employers should consider

Overtime is when your employee works extra time.

The ATO Employer Guidelines include good examples on some of the finer and more complex situations around when overtime may not actually be overtime.

IMPORTANT CHANGE: You may be surprised to learn that in some specific situations, the payment of Leave Loading would be classified as Overtime and not as Paid Leave.

Within the ATO Employers Guidelines they explain the difference and where your business has paid leave loading historically, it will be necessary to review to make sure that it is being reported according to the correct category.

• Leave Loading categorised as overtime – where it is clearly linked to a notional loss of opportunity to work overtime, otherwise.
• Leave Loading is categorised as Paid Leave.

What employers should consider

Salary Sacrifice and how this is reported is changing with STP2.

IMPORTANT CHANGE: The values that previously reduced the Gross value reported to the ATO are now required to be reported separately.

In addition, to be clear on the type of salary sacrifice that is in place it is defined between 2 types of categories. Superannuation Salary Sacrifice – type (S) and all other Salary Sacrifice deductions – type (O).

DECISION: Review how you categorise salary sacrifice in your payroll solution, as all payments that relate to Superannuation are required to be identified when reported under the new STP2 requirements.

As part of the design of our solution, we have considered how best to manage some of these changes for you. 

Listed below are some of the areas that will be automated to assist in your transition to STP2.

Tax Treatment – this ATO term relates to the detail of how employees are being taxed in your payroll solution.

• A new 6 character code has been created to identify all the taxation scenarios for every employee paid.
• Based on the tax setup in each employee’s record, this new Tax Treatment code will be automatically created.
• This option replaces the tax file declaration data that was previously sent when an employee first was paid in STP1.

Tax Declaration – A tax declaration form is still a requirement to begin employment and must still be completed by the employee and submitted to the employer to know how to tax their pay.

Income Types – this ATO term relates to the type of employee and how the income is derived and taxed.

• There are additional income types that have been created for reporting for STP2
• Based on the Tax File Declaration form – the Income Type is derived for most employees. For example:
• Australian Resident will automatically have their earning reported in the income type 'Salary and Wages' (SAW).
• Working Holiday Makers will automatically have their earning reported in the income type 'Working Holiday Makers' (WHM)
• Seasonal Worker Programme employees will automatically have their earnings reported in the income type 'Seasonal Worker Programme' (SWP).

When paying all other income types in STP2, specific pay items will need to be configured to pay the income type desired, Refer to the STP2 in Access Definitiv guide for more information.

NEW! STP Phase 2 in Access Definitiv | PDF

NEW! YTDs Comparison STP1 vs STP2 |Excel Spreadsheet (macro enabled)

NEW! YTDs Comparison STP1 vs STP2 | Video walkthrough

• STP Phase 2 Webinar 1 | Key Changes in STP 
• STP Phase 2 Webinar 2 | Disaggregation of Gross Part 1 
• STP Phase 2 Webinar 3 | Disaggregation of Gross Part 2
• STP Phase 2 Webinar 4 | Salary Sacrifice, RESC and Reportable Fringe Benefits 
• STP Phase 2 Webinar 5 | Recap and FAQ
• ATOtv | STP2 videos
• Q&A with the ATO

• Expanding Single Touch Payroll
• Commmon questions and mistakes
• Employer checklist
• Employer reporting guidelines
• Reasonable travel and overtime meal allowance expense amounts
• Reporting the amounts you have paid