Single Touch Payroll One Stop Shop – Part 1

For those of you who know me, I consider myself a perfectionist, but I’m not perfect!

I aimed to get a monthly newsletter out last month and the month before that, but I just couldn’t fit it all in with everything I had on my plate. My plan was to dedicate the newsletter to the hottest topic on the lips of accountants and the ATO, “Single Touch Payroll” and I have to say this newsletter has sat in draft and I have kept adding to it, so I’ve decided to distribute in two parts, one today and another within the week.

Also in my defence, perhaps an earlier distribution would have been lost in all the noise of the banking royal commission and the ATO bullying allegations from Four Corners and ACA, which I have covered in my weekly “5 on the Fly” and who could forget the 31 May and 5 June lodgement dates?

So here you go, your one stop shop, The Basics of Single Touch Payroll (STP) newsletter (Part 1), complete with my tax practitioner/trusted advisor focus dialogue and important links so that you can get yourself, your team and your clients ready and raring to go for their mandated start dates!

The ATO resources are fabulous so there is no need to re-invent the wheel!

A guide to this edition of my newsletter:

• the text in italics below is taken directly from the ATO website*
• where you see this symbol 🖥️, the link will take you to the relevant section on the ATO website
• where you see this symbol 🎬, the link will take you to the relevant ATO webinar.
  * current as at 12 June 2018

I believe STP is one of the biggest changes since GST. We all survived that and in fact I think most would agree, GST has been a positive for both our business clients’ and our own practices. STP is just a continuation of that journey and I see so many parallels. As a result of the introduction of the GST, we get to do our compliance work progressively and the ATO have given our clients a reason to keep in touch with us more regularly.

As you familiarise yourself more with the workings of STP, consider how you can use this new change to further streamline how your clients do things and how you do things in your own practice to embrace technology, to gain efficiencies and create capacity so that you can offer those value added services that sadly, you may not have had the time in the past. These services offer enormous value to your clients and contribute handsomely to both your practice’s bottom line and the level of partner and team satisfaction.

To increase your chances of getting greater buy in from your clients and your staff, I would recommend before you get into the mechanics of STP that you spend some time setting the scene of explaining what STP is and why it is being introduced. I’m sure most of your business clients are doing the right thing and paying their fair share of taxes, so it is likely that they will see a system that is going to capture those that aren’t, as being positive and something that they wholeheartedly will want to embrace and will be happy for you to assist them getting up to speed and adopting. Bamboozle them with the process first and it becomes a much harder sell!

WHAT IS SINGLE TOUCH PAYROLL AND WHY IS IT BEING INTRODUCED?
STP is a new way of reporting payroll information to the ATO. STP does not change the way you pay your PAYG and superannuation obligations.

• Single Touch Payroll (STP) aligns your reporting obligations to your payroll processes.

• You will report to us each time you pay your employees. Your pay cycle does not need to change. You can continue to pay your employees weekly, fortnightly or monthly.

• The information you send us will include your employees’ salaries and wages, allowances, deductions (for example, workplace giving) and other payments, pay as you go (PAYG) withholding and superannuation information.

The ATO is wanting to interact with businesses digitally and in a more contemporary way and they believe STP will bring the following benefits:

Simplified reporting
 – Obligations reported to the ATO at the same time employees are paid
– No need to provide an end of year payment summary

Level playing field
 – Assurance that businesses are meeting their obligations
– Better assistance to those having difficulties meeting their obligations

Better access to information
 – Employees can view their year-to-date tax position
– Employees will have more visibility over their Super Guarantee entitlements

Streamlined commencement process (Optional)
 – Depending on the employers software, employees will be able to complete Tax File number (TFN) Declaration and the Superannuation Standard Choice form online using prefill information

🖥️        About Single Touch Payroll

🎬       ATO Webinar “Why and What is Single Touch Payroll”

WHEN DOES SINGLE TOUCH PAYROLL START?
STP starts on 1 July 2018 for employers with 20 or more employees. For all other employers, STP starts on 1 July 2019 (subject to legislation currently in Parliament being passed).

• Employers with 20 or more employees:
  – You need to start reporting to us through STP from 1 July 2018 if your software is ready. – Some payroll software providers have asked us for more time to update their products – check if your product has a deferred start date. – If your software will be ready by 1 July 2018 but you won’t be ready, you will need to apply for your own deferred start date.

• Employers with 19 or less employees:
   – From 1 July 2019 STP will be mandatory, subject to legislation passing in parliament.
   – You can choose to report through STP before 1 July 2019 if your software is ready.

🖥️        About Single Touch Payroll

🎬       ATO Webinar “How Single Touch Payroll Works”

HOW DOES SINGLE TOUCH PAYROLL WORK?
Reporting under STP has been designed to follow natural business processes. The ATO has been working closely with payroll software companies and you may see them referred to on the ATO website as digital service providers (DSP’s). STP enabled software will take care of transmitting the payroll information to the ATO, however, it is important that the information in the software is accurate and this is where your business clients will need your help and some may require more help than others!

Once you start reporting to us through your Single Touch Payroll (STP)-enabled software you will be sending us your tax and superannuation information on or before each pay day. We call this a ‘pay event’.

You will be able to make corrections to the information you have sent to us. You can do this through an ‘update event’, or in the next regular pay event.

• There are mandatory payments that you must report, voluntary payments that you can choose to report, and some payments you can’t report with Single Touch Payroll (STP). We have developed an employer guide to help you report through STP when you’re ready. You can access and print out a PDF version of this content, Single Touch Payroll employer reporting guidelines here.

During the first 12 months that you report through STP you will be exempt from an administrative penalty for failing to report on time. This is unless we have first given you written notice advising that a failure to report on time in the future may attract a penalty.

🖥️        Report through Single Touch Payroll

🎬       ATO Webinar “How Single Touch Payroll Works”

WHAT WILL CHANGE UNDER SINGLE TOUCH PAYROLL?
Under STP, reporting to the ATO will be at the same time an employer pays their employees.

That means at the end of the year, the ATO will already have details of most of the payments made to an employee. At the end of the year when an employer has carried out their final checks, balances and reconciliations that will either notify that the information lodged progressively during the year is correct and finalise that information or they will send an update to the ATO to correct previously lodged data and then finalise that information.

The ATO will then mark the payroll information as finalised on the employees myGov record and on the ATO agent portal.

Each time you pay your employees, you will report the tax and super information to us from your Single Touch Payroll (STP)-enabled payroll solution.

You will not need to provide payment summaries to your employees for the payments you report through STP:

• Employees will be able to view their payment information in ATO online services, which they will access through their myGovThis link opens in a new window account. Your employees can also request a copy of this information from the ATO.
• To be exempt from giving payment summaries, you will need to make a finalisation declaration.

From July 2019 we will pre-fill activity statement labels W1 and W2 with the information we have received from you. If you are a small to medium withholder, you will continue to lodge an activity statement as you do now. 

For large withholders, W1 labels will be removed.

🖥️        About Single Touch Payroll

🎬       ATO Webinar “How Single Touch Payroll Works”

The ATO will use this information to pre-fill W1 & W2 labels on the BAS for small to medium withholders (from 1 July 2019).

Information submitted correctly to the ATO will be visible in employee myGov records.

The ATO will have more visibility over super guarantee contributions and will be able to intervene a lot earlier for late and unpaid super.

So the big focus for firms right now will be on the clients that have 20 or more employees, as their STP start date is 1 July 2018, but just keep in the back of your mind, employers with less than 20 employees that may want to enter the STP system earlier. These would predominately be your clients that are tech savvy, love being early adopters and want to streamline their business bookkeeping and accounting as much as possible.

Also think about your workload this time next year – March BAS’s, FBT, 2018 FS & ITR’s and tax planning and then throw into the mix STP transition for clients that will need varying levels of assistance.

To assess whether an employer has 20 or more employers, they should already have counted the number of employees they had on 1 April 2018 or if they haven’t, they will need to “look back” to see how many employees they had on 1 April 2018.

Here’s a few frequently asked “headcount” questions that have come up from accounting practices that I have been talking to about STP over the last couple of months:

• it is an “actual” headcount and not a “full-time equivalent” headcount
• if an employer had 20 or more employees on 1 April 2018 but less than 20 on 30 June, they are still required to start reporting via STP on 1 July 2018
• if an employer had less than 20 employees on 1 April 2018 but 20 or more on 30 June, they are not required to start reporting via STP on 1 July 2018, however they may choose to do so
• there is no requirement to send the headcount numbers to the ATO but documentation of the count should be retained
• if an employer is part of a company group, the headcount must include the total number of employees employed by all member companies of the wholly-owned group.

Include in headcount:

• full-time employees
• part-time employees
• casual employees and seasonal workers who were on your payroll on 1 April and worked any time during March – there are exemptions to counting seasonal workers who were employed for a short-time only
• employees based overseas
• any employee absent or on leave (paid or unpaid).

 

Don’t include in headcount:

• any employees who ceased work before 1 April
• casual employees who did not work in March
• independent contractors
• staff provided by a third-party labour hire organisation
• company directors
• office holders
• religious practitioners.

Directors, office holders and religious practitioners are not included in the headcount. They are not considered employees within the common law meaning of the term.

However, when you start reporting through STP you will need to report their payment information. This is because the payments are subject to withholding and are currently reported in the Individual non-business payment summary.

🖥️        How To Count Your Employees

🎬       ATO Webinar “Headcount”

EXEMPTIONS

The main reasons that ATO will consider granting an exemption are on the following basis.

• if an employer is located in a rural area with no reliable internet connection
• if an employer is classified as a substantial employer (20 or more employees) for a short period of the income year – for example, due to harvesting activities.

Currently there is a class exemption for employers with seasonal workers, provided they meet the specified conditions.  Please note however that if legislation is passed to extend STP to all employers from 1 July 2019, the seasonal workers exemption will no longer apply.

You or your registered agent can submit a request using the Business Portal, Tax Agent Portal or BAS Agent Portal:

1. Select General questions/problems/help as the message topic.
2. Enter Single Touch Payroll as the message subject.
3. Include the following information:  
   • the number of employees on your payroll – this will help us understand the size and complexity of your business
   • the reasons why you are unable to report through STP
   • any steps you have taken to attempt to get ready for STP
   • any supporting evidence that may help us understand your circumstances.

If you are requesting an exemption for reporting a particular employee or group of employees, provide:

• the details of the employee
• the nature of their employment
• any supporting evidence.

When we receive your request we may contact you for further information.

🖥️        Exemptions

🎬       ATO Webinar “Deferral and Exemptions”

DEFERRALS

The ATO may grant a deferral to a substantial employer to “defer” their STP start date.

However, unless one of the following three deferral types have been granted prior to 30 June 2018, the ATO will be expecting to receive STP reports from 1 July 2018.

There three main deferral types are:

• payroll software providers also known as digital service providers (DSP’s)
• employers
• registered agents providing a payroll service

MISTAKES

The ATO will provide a period of time to correct a Single Touch Payroll report without the employer being liable to a penalty for making a false or misleading statement.

The ATO call this a ‘fix’ and if this fix does not get made within the grace period, an employer may be liable to a penalty.

The grace period is 14 days ie. you have 14 days (or the next regular payday monthly payroll) from identification of the error to report the correction without penalty.

The ATO will be very much in a “help and assist” mode for employers reporting under STP during the first twelve month transition period.

Correcting employee information

If the employee year-to-date information you last reported to us does not reflect the information in your payroll system, you should submit the updated information to us either:

• within 14 days of the need for a correction being identified
• in the next regular pay event where the affected employee(s) have continuity of employment.

If we send an error message to you relating to the employee data you have reported the same ‘fix’ rules apply to correcting those errors as above.

Overpayment identified within the same financial year

Where an overpayment is identified in the same financial year it was paid, the employee will only need to repay the net amount of the overpayment. The net amount is the amount received by the employee.

You will need to ensure we have the correct amounts recorded (the employee’s year-to-date values do not include details of the overpayment). You can make these fixes in either:

• the next regular pay cycle report for the employee (by reducing the employee’s year-to-date figures and your employer-level gross payment and withholding figures)
• an update event, within 14 days of the overpayment being identified.

Misclassification with no additional payment

A misclassification is when information has previously been reported under an incorrect item. For example, a payment was reported as salary or wages instead of as an allowance, and no additional payment is made to the employee.

You can make this fix in the next pay event or use an update event.

Reporting under an incorrect ABN or PAYG withholding branch

You must correct your employees reported under an incorrect Australian business number (ABN) or PAYG withholding branch. To fix this, you should report your employee under the correct ABN or PAYG withholding branch from the point you discovered the error and adjust any incorrectly reported amounts from the incorrect ABN or PAYG branch.

You can make these adjustments in the next pay event or using an update event. If the adjustment moves PAYG withholding amounts between ABNs or branches you may need to revise activity statements.

Note: If you are a large withholder, follow your existing process.

Full file replacement

A full file replacement gives you the ability to completely replace the latest pay event file you sent to us in error, or which contained significant corrupt data.

You shouldn’t use a full file replacement for corrections.

A full file replacement:

• may only be used to replace the latest pay event

• must contain the submission identifier of the pay event to be replaced

• cannot be submitted if any employee information has subsequently been changed in a payroll or update event

• cannot replace an update event – a new update event should be submitted.

🖥️        Correcting A Pay Event Report

🎬       ATO Webinar “Corrections and Fixes”

PENALTIES

The ATO have advised that the first year of STP is a transition period and as such there will be exemptions from administration penalties for failure to report on time during this time.

Failure to enter the STP system when required is a different story!

The ATO will definitely be in a position to identify those substantial employers who do not have a deferral in place and have failed to start reporting under STP from 1 July.

During the first 12 months that you report through STP you will be exempt from an administrative penalty for failing to report on time. This is unless we have first given you written notice advising that a failure to report on time in the future may attract a penalty.

OTHER FEATURES

New employees will have the option to complete their TFN declaration and super standard choice forms online with most information pre-filled and validated.

No need to prepare Payment Summaries and Annual ATO reports as the ATO will have all of the information as it has been collected during the year.

ANNUAL PAYMENT SUMMARIES AND FINALISING YOUR SINGLE TOUCH PAYROLL DATA

As the ATO will be receiving payroll information during the year there are a number of changes.

You may be exempt from giving payment summaries and a payment summary annual report for the amounts you reported through Single Touch Payroll (STP). This information will be made available to your employees online through myGov. Your employees can also request a copy of this information from us.

To be exempt from issuing these payments summaries to your employees, you will need to make a finalisation declaration. This declares you have provided all required information for the financial year through your STP reporting.

These payment summaries include:

• PAYG payment summary – individual non-business (INB)
• PAYG payment summary – foreign employment income (FEI)
• PAYG payment summary – employment Termination Payments (ETP).

You will not have to provide payment summaries for the following payments if you reported them voluntarily through STP:

• payments under voluntary agreement
• payments under a labour hire arrangement
• death benefit employment termination payment.

You will need to provide a payment summary for any payments not reported through STP.

Finalisation declaration

You make a finalisation declaration by providing a finalisation indicator for an employee (and directors, contractors, etc.) as part of your STP reporting.

Once you have provided the finalisation indicator for the employee, we will pre-fill the employee’s income tax return and display the information as ‘tax ready’ in myGovExternal Link.

You can make a finalisation declaration for an employee any time during the financial year (for example, for employees who have ceased employment), or after the end of the financial year up to 14 July. We have provided additional time for employers to make a finalisation declaration in their first year of reporting through STP.

• Employers who started reporting in the 2017–18 financial year have until 14 August 2018.
• Employers who start reporting in the 2018–19 financial year will have until 31 July 2019.

If you need more time, you can apply for an extended due date to make your finalisation declaration.

You may be subject to a penalty if you do not make a finalisation declaration or, alternatively, provide payment summaries by 14 July each year.

Finalisation declaration during the financial year

If you make a finalisation declaration during a financial year, you do not need to provide the employee with a part-year payment summary.

If you pay an employee, and have already made a finalisation declaration for them for a financial year, consider the following:

• if it is a one-off payment – make another finalisation declaration when you report this payment
• if you expect to make another payment (for example, you re-hire the employee) – unselect the finalisation indicator and wait until the end of the financial year to make another finalisation declaration.

If you finalise an employee partway through the financial year, the pre-fill will not be available until after the end of the financial year. The employee will need to follow the current process for lodging a part-year tax return. This would mostly impact employees who are leaving Australia once their employment has terminated.

Amendments after finalisation

If you identify the need to amend details after making a finalisation declaration you should submit these as soon as possible. You can do this by submitting an update event.

We understand you may not be able to submit an update event report with the amended details within 14 days of identifying the need for an amendment. If this is the case, you should submit an update event with the previous details and the final indicator is removed. This will advise us that the current information is not final and should not be used to pre-fill tax returns.

You can amend finalised information reported through STP up to five years after the end of financial year.

Overpayment relates to a previous financial year

If you overpay a worker in a previous financial year and only discover the overpayment in a later year, you should submit an update event to advise us the amounts the employee should have received in the relevant financial year. Do not adjust the amount of tax withheld.

You should provide an update event for each financial year an overpayment occurred in.

If the overpayment relates to a payment you did not report through STP you should provide the worker with an amended payment summary and an amended payment summary annual report to us.