The new financial year has begun which means Single Touch Payroll (STP) is here for all employers. Have you implemented the new system? Or are you still hoping it will go away? Well the bad news if you’re in the latter category, is NO! The good news is that you still have time to comply with the new system which is now a legal requirement.
Let’s recap for those of you who are joining the story late. STP will enable you to process your payroll, make the payment to your employees and at the same time report to the Australian Taxation Office (ATO) information about gross wages, PAYG tax withheld and superannuation guarantee. You will pay PAYG withholding and superannuation as normal. Employees will have real time access to their wages information through their MyGov account which will remove the need to prepare annual PAYG payment summaries. Employers with 20 or more employees were required to implement from 1 July 2018. All other employers are required to join from 1 July 2019.
There are three categories of small business when it comes to STP:
- You are using the latest version of a major accounting package.
- You are using accounting software but it isn’t up to date.
- You aren’t using accounting software and instead maintain wages records either manually or using a spreadsheet.
Let’s deal with each of these scenarios and what you will need to do.
- Using up to date software:
Easiest first, if you have an up-to- date version of a major accounting package (think Xero, MYOB or QuickBooks), the transition is simple. You will need to notify your provider that you are implementing the system. The software will guide your through the process including connecting with the ATO. You will need an AusKey (this gives you access to your account with the ATO) and to provide details of who will be reporting. Your tax agent is able to report your behalf; you can authorise your HR/payroll staff; or you can do yourself. Once set-up, when you run payroll, it will simply be a matter of confirming that the information is to be transmitted to the ATO.
- Using out of date software:
If you are using software but it is an old version which isn’t STP compliant, you will need to upgrade or implement a new package. Alternatively, you can continue using your software but implement a standalone payroll system. The ATO have liaised with software providers to provide low cost (less than $10 per month), simple solutions to small and micro businesses. The software provider will guide you through implementation including the need to obtain an AusKey.
A list of suppliers who will be offering low cost, simple solutions is available here.
- Not using software:
If you are in the final category, you are going to need to use an electronic system to report to the ATO. There are no manual options. You also are going to need to implement a new system. You can implement one of the full accounting packages (for example, Xero, MYOB or QuickBooks). This has the advantage of assisting you with preparing your Business Activity Statements and year end accounting records. Alternatively, you can use one of the low cost providers and implement a system of electronically reporting your payroll data to the ATO as in the link above.
Regardless of which solution you choose, here are some more STP implementation issues which you need to consider:
Employers have until 30 September to implement STP. By this time you should be reporting payroll payments on the recognised pay date. You will need to report all payroll transactions for the year to date if you haven’t reported from 1 July. Your software provider will be have a system for this process.
If you are a micro employer (1-4 employees) with a good compliance record, there is a transition measure to allow you to report quarterly through your registered tax agent. This will be available for two years.
You will no longer need to provide PAYG payment summaries – there is an end of year process to complete the payroll records. Employees will be able to access an Income Statement once finalised after the end of the financial year.
Employees will have access to their payroll data in real time through their MyGov account. There is no obligation on the employer to provide an annual income statement. If the employee does not have a MyGov account, they can access the information through their tax agent or go directly to the ATO. Employers are still required to provide a pay slip after each payment is made.
There are options if you find an error in a payroll event that has already been reported. These options will depend on your software system and whether it involves a current or former employee. Generally, the error should be reported within 14 days of detecting it. However, it can be adjusted through the next regular payroll cycle if the employee is continuing.
As an employer, you will have access to summary information that has been reported through the year. This is done through the business portal. This information is also available to your tax agent.
If you need to report disclosure items such as fringe benefits, this can be done as a separate payroll event through your chosen software.
Payments to staff outside of a normal pay cycle (eg bonuses) can be reported either as a separate event or as part of the next normal pay cycle. It will depend on your software provider and your preference.
As part of the changes, superannuation funds are now required to report to the ATO when they receive a contribution for employees. There will be data matching to identify where employers are not complying with the superannuation reporting obligations.
There is not change to when superannuation must be paid.
If you have employees who are “closely held” that is, they are related to the entity (eg directors who are also employees), there is an exemption from STP for the 2019/20 year. In the future, closely held employees will be able to be reported quarterly. There will also be an extension to when year end payroll is finalised (similar to the current arrangements for PAYG payment summaries).
If you have additional issues which mean you are unable to comply by 30 September, you are able to apply to the ATO to defer implementation. This is done online and whether deferral is granted will depend on eligibility criteria including up to date payments and lodgements.
The ATO are assuring all small businesses that there will be a period of transition where they will be focusing on assisting employers to get the process right. But the bottom line is that you need to act NOW!
There are a lot of useful ATO resources to introduce and implement STP:
How to transition for small business ATO webinar
Checklist for STP implementation
The ATO has also published various fact sheets for closely held employees, micro employers etc. These can be found on their website.
Do you have further questions about how STP will affect your business? I’m more than happy to chat with you and offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!