All businesses in Australia – including the single employee business – will have to put away the spreadsheets or paper when it comes to keeping track of the wages for the business from here on. “Substantial” employers (ie 20 or more employees) have been at it for a year now. However from 1 July 2019, all micro and small employers (i.e. up to 20 employees) will be required to implement Single Touch Payroll (STP) as a new way of reporting their wages information to the ATO.
It is important to understand that STP is a reporting change only. That is , STP does not alter when or how employers are required to remit PAYG Withholding amounts to the ATO (as part of the BAS) or pay SG contributions into superannuation on behalf of their employees (via Superstream). The main reason for the ATO introducing STP was to enable the ATO to identify and address non-compliance in the area of PAYG withholding and Superannuation Guarantee by employers much sooner than previous reporting systems allowed. It also allows data collected by the ATO to be shared with other Commonwealth agencies to ensure that individuals receiving Government benefits are paid their correct entitlements.
What is Single Touch Payroll?
It is an ATO system whereby payroll information is reported to the ATO on a “real time” basis. It involves employers using STP enabled software to electronically report the wages information, PAYG Withholding and Superannuation information to the ATO. This will need to be done either directly from the employers payroll system or using a third party system (eg tax agent). Under the STP system, no end of year payment Summaries will be required.
What is the STP start date for smaller employers?
Generally the start date for employers with less than 20 employees is 1 July 2019, however the ATO may grant a deferred start date if the employer anticipates that it will not be ready to commence STP on time. It should be noted that STP reporting requires the use of Standard Business Reporting (SBR) enabled software and a reliable internet connection. For many employers, this means changing their payroll software. If the software being used has not been upgraded to be SBE compliant, that is good grounds for a deferral. If there are extenuating circumstances such as drought or other circumstances beyond its control, this provides other good reasons for a deferred start date. Generally though, deferrals only apply for a short period before which reporting under STP is required.
What are the reporting obligations under STP?
Under the STP reporting requirement, employers must electronically report the following amounts to the ATO at the time the payment or withholding is made (ie on a “real time” basis):
Any payments subject to PAYG Withholding and the amount withheld;
Employee salary or wages;
Any salary sacrificed amounts.
In order for the employer to be exempt from the PAYG Payment Summary reporting under the new system, it must provide the ATO with a finalisation declaration. This is done through their payroll system. This enables the ATO to make the information available to employees and their tax agents through its online services (such as the Mygov account and the ATO Portal Services). Generally a finalisation declaration must be made by 14 July in respect of payments made in the prior income year. It can however be made at any time during the income year in a situation where, for instance, an employee has ceased employment.
What options are available for small and macro businesses?
Following extensive consultation, the ATO have announced that it will adopt a gradual approach for the implementation of STP for smaller employers. It seems that the ATO have recognised that this is a big change for small business to move to real time digital reporting and a gradual approach to the implementation of STP would be well received. In this regard, the ATO have announced several options to assist employers with less than 20 employees make the change to STP.
Tax Tip: The Commissioner of Taxation has announced that there will be no penalties for mistakes, missed or late reports for small employers in the first year of reporting under STP (however a genuine attempt needs to be made to warrant the ATO leniency).
1. Employers with 5 to 19 employees. Small employers have effectively been given an automatic three month deferral. This means that they can start reporting under the STP at any time from 1 July 2019 to 30 September 2019. If an employer will not be ready for STP by 30 September 2019, they should apply for a deferral. My advice on this is to try and be ready by 1 July 2019 since you will be using part of the year under the old system and part under the new STP system. Also If you have intermittent or no internet connection, you have grounds for applying for an exemption from STP reporting.
2. Employers with 1 to 4 employees. Employers with 1-4 employees can implement STP using one of the following options.
Quarterly reporting until 30 June 2021 using a registered agent. Micro employers are now able to use a registered Tax or BAS Agent to report on a quarterly basis for the first two years (until 30 June 2021), rather than each time a pay run occurs. This means that micro employers can lodge at the same time as the BAS is lodged for the quarter. However from 1 July 2021, micro employers must report at the time of each pay run (subject to deferrals or exemptions).
No-cost and low cost STP solutions. Many micro businesses do not have the payroll software in place, but currently use spreadsheets or paper to keep track of the wages information. There are now affordable solutions costing $10/month or less that can provide the appropriate software for reporting the STP information to the ATO. The software approved by the ATO can be found by clicking the button below:
3. Employers with family employees. Many businesses have only family members working in the business and perhaps only have a few unrelated employees. People who run their own business often do not pay themselves a regular wage. The ATO have accepted that the nature of family owned businesses has necessitated a flexible approach in respect to family member employees. They have therefore allowed small and micro employers with family member employees to adopt the following approach from 1 July 2019:
An STP exemption applies for the first year (ie to 30 June 2020). This exemption applies to someone who is directly related to the payer. In addition to this, employers will have until the due date of the 2019 tax return to finalise PAYG Payment Summaries of family member employees. All other non-family employees must be reported for each pay run from the start date and finalised by 31 July 2019.
Quarterly Reporting thereafter. From 1 July 2020, family member payees are reported quarterly.
What is the checklist of key issues for starting STP?
What preparation do you need to do to start STP?
1. Determine how the STP reports will be lodged with the ATO. Employers can report either from STP enabled payroll software, or a registered tax agent to lodge the STP reports on the employers behalf. Low cost solutions are also available.
2. Choose the options available for implementing STP reporting. For small employers (5-19 employees) , start reporting at any time before 30 September 2019 unless a deferral or an exemption is granted. For micro employees (1-4 employees), you can elect to lodge STP reports quarterly until 20 June 2021 through a registered tax agent, then each pay event after that. No cost/low cost solutions are available. Closely held employees (eg family members) can elect for a reporting exemption for 19/20 and quarterly reporting thereafter. Remember that finalisation declarations are due by the date of the employers tax return.
3. Communicate with employees. Your employees need to understand how the change to STP will impact on them (eg every time a pay run is done, this is reported to the ATO, and no payment summaries at the end of the financial year).
As always, if you need assistance in the process of setting up for
Single Touch payroll, we are here to help.
Get in touch and we will be glad to assist.
(02) 6884 5542