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The Single Touch Payroll (STP) reporting regime commenced on 1 July 2018 for ‘substantial employers’ (businesses with at least 20 employees).
Since 1 July 2018, many registered tax and BAS agents have been assisting their clients by lodging STP reports on their behalf. However, the agent is required to obtain an authorisation from the client every time they lodge an STP report — which could be as frequently as weekly. This impractical obligation has caused much consternation and frustration over the past few months for both employers and their agents.
The ATO has addressed this problem by recently announcing a streamlined authorisation process which allows the client to submit an annual authorisation to cover all STP reports lodged by their tax or BAS agent during that year.
This is a welcome move to reduce an unnecessary administrative burden, and it will be even more critical from 1 July 2019 when STP reporting extends to smaller employers (legislation to extend STP reporting to smaller employers is currently before the Senate).
Previous authorisation requirements
Under STP, an employer is required to report information relating to a ‘payroll event’ at the time that the ‘event’ (e.g. a payment of salary or wages on which there is a PAYG withholding obligation) happens.
Apart from regular payroll events (e.g. monthly, fortnightly or weekly pay-runs), an employer may also report an ‘out-of-cycle’ payment made to an employee outside of the employee’s regular pay cycle. For example, this may occur where the employee is paid a commission, bonus or back payment.
Further, the employer may choose (there are alternative means) to use a one-off ‘update event’ to:
- correct an error made in a previous report; or
- report reportable employer superannuation contribution amounts and reportable fringe benefit amounts.
Prior to the recently announced annual authority, the ATO required a written declaration to be provided to the Commissioner each time that an STP report was lodged by the employer’s authorised agent on their behalf. The written declaration had to contain the following:
- a declaration that the information contained in the approved form (the STP pay event or update event) is ‘true and correct’; and
- that the declarer is authorised to lodge the approved form.
Going forward, the ATO’s new STP engagement authority allows eligible employers to provide a signed authorisation only once a year instead of at each reporting event.
STP engagement authority
An STP engagement authority will evidence a registered agent’s authorisation to prepare STP reports for pay events on behalf of a client employer. It will allow the registered agent to make the relevant declaration to the Commissioner at the time of lodging an STP report each pay event.
Eligibility for the authority
To be eligible to provide a registered agent with the STP engagement authority, the employer must not:
- have any overdue activity statement lodgments;
- have any outstanding debts, unless they are covered by a payment arrangement or subject to review; or
- currently be, or have been, the subject of ATO compliance activity for PAYG withholding in the last two years.
Where the employer is a company, its directors must not have been issued with a Director Penalty Notice in relation to the company or any other company where they are, or have been, a director.
An authority must be reviewed and signed by an employer and their registered agent:
- every 12 months; or
- any time there has been a significant change in the industrial relations, taxation or payroll process.
What to include in the authority
The STP engagement authority should:
- outline the responsibilities of both parties; and
- include the agreed terms of the employer’s:
- collation of payroll related inputs;
- process for calculating and paying their employees; and
- taxation and superannuation obligations.
This approach may be applied where a registered agent prepares and lodges STP reports on behalf of the employer.
The ATO expects the declaration will, at a minimum, include the following:
The STP engagement authority may only apply for a period of no longer than 12 months. This is to ensure the employer and the registered agent have reviewed and agreed on the terms of the arrangement in line with industrial, taxation and business changes impacting the payroll.
Both the employer and registered agent should co-sign the agreement and keep a copy for their records. Neither party needs to provide a copy to the ATO.
The ATO has not released a pro forma STP engagement authority. Registered agents and their clients will need to draft their own.
The STP engagement authority does not apply to the STP finalisation declaration.
For each income year, the employer (or their authorised agent) is required to make a ‘finalisation declaration’ for a specific employee by providing a finalisation indicator by 14 July after the end of the income year. This is done on an employee-by-employee basis.
An automatic deferral is in place for:
- the 2017–18 income year — 14 August 2018 (this applied to employers which voluntarily commenced STP early); and
- the 2018–19 income year — 31 July 2019 (this will apply to substantial employers, and any small employers which voluntarily adopted STP early).
A registered agent must still obtain a signed declaration in writing from an employer before making the finalisation declaration on behalf of the employer.
The STP engagement authority also does not apply to any other obligations (e.g. activity statements, income tax returns and FBT returns) where the registered agent is required to obtain a signed declaration each time they lodge on behalf of their client.