The ATO has recently published a number of fact sheets in relation to Single Touch Payroll (STP) changes which will take effect on 1 July 2021. Small employers will commence to report for closely held payees, and the quarterly exemption for micro employers...
Starting to report through STP
We are now at the pointy end of implementing STP reporting which has applied to substantial employers (20 or more employees as at 1 April 2018) since 1 July 2018 but has been expanded to include small employers (19 or fewer employees) from 1 July 2019. This is the most significant change to reporting systems for businesses since the introduction of the GST on 1 July 2000.
Under STP, an employer reports information on their employees’ salaries and wages, PAYG withholding and superannuation to the ATO in line with their payroll cycle.
Amending legislation — contained in the Treasury Laws Amendment (2004 Measures No. 4) Act 2019, which was enacted on 1 March 2019 — extends the requirement to report employees’ payroll and superannuation information through STP to the ATO at the time of the payroll to all employers from 1 July 2019.
Current STP data
As of 17 June 2019, there were 137,000 employers reporting through STP, comprising 55,000 substantial employers and 82,000 small employers, and covering 7.5 million employees.
No blanket exemptions
There are no carve-outs or blanket exemptions as such for groups of employers or types of industries. All employers, including not-for-profit entities, will be required to do payday reporting through STP from 1 July 2019 (subject to any deferrals in place until 30 September 2019 or beyond). The ATO has designed special reporting arrangements for micro employers, employers with closely held payees and employers with seasonal or intermittent employees (see below).
While there are no general exemptions, the ATO has registered a number of legislative instruments which exempt the following from STP reporting:
- employers with a Withholding Payer Number — for 2018–19 and 2019–20 only;
- insolvency practitioners and employers subject to their appointment — for 2018–19 only; and
- payments made to members by Portable Long Service Leave and Portable Redundancy Scheme Providers — for 2018–19 and 2019–20 only.
|Employer-level data||This part of the STP report contains for all employees for the pay period:
|Employee-level data||This part of the STP report contains for each employee:
During the year, the status of the employees’ information in ATO Online (accessed through myGov) shows as Year to Date.
|Employment income statement
|This is the ATO equivalent of an employer-issued payment summary containing the annual STP data reported by employers. It is:
|Exemptions and deferrals||An exemption relieves an employer from reporting through STP for a whole income year. Exemptions are granted by the ATO on a case-by-case basis.
An employer who is not yet ready to report may apply for a deferral seeking to delay reporting through STP. Deferrals apply for only part of an income year and are granted by the ATO on a case-by-case basis.
Businesses can apply for their own deferral or exemption by logging in to the Business Portal and selecting Manage employees ⇒ STP deferrals and exemptions.
Registered agents can apply for a deferral or exemption for a client through:
|Finalisation declaration||The process by which employers ‘lock-down’ the information provided to the ATO during the year and declare that the information reported is correct.
The Finalisation declaration must be done no later than 14 July (by 31 July for the employer’s first year of STP reporting) and is indicated on a per employee basis as part of each employee’s STP report.
On 30 June each year, the status of the employees’ information in myGov changes from YTD to Not tax ready. Once the ATO receives the Finalisation declaration from the employer, the status of the employees’ information in ATO Online (accessed through myGov) changes from Not tax ready to Tax ready.
What happens if an employee uses unfinalised data to lodge their tax return?
Where an employee lodges using ’Tax ready’ data that is subsequently amended by the employer, an amendment will still be required to correct the return, however generally any Shortfall Interest Charge will be remitted.
|myGov||Your myGov account lets you select and link to government online services from the one place.
Once an employer starts reporting through STP, their employees’ payroll and superannuation information is available in ATO Online which is accessed through myGov.
|Pay event||This is an electronic file generated by the STP-enabled software which captures the salary or wage, PAYG withholding and liability for SG amounts at the time of the payroll.
A pay event always involves the payment of an amount to the employee that is subject to PAYG withholding. This could be in line with the periodic payroll cycle, e.g. every week, fortnight or month, or it could involve an out-of-cycle payment such as a bonus or a termination.
Each pay event provides the ATO with both employer-level data and employee-level data (see above) as part of the STP report.
|SSID||There are 3 ways your software can connect to the ATO:
|STP engagement authority||A written agreement which evidences a registered agent’s authorisation to prepare STP reports on behalf of an employer. It will allow the registered agent to make the relevant declaration to the Commissioner at the time of lodging each STP report.
The STP engagement authority is subject to eligibility criteria and does not apply to other approved forms or the Finalisation declaration.
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.
There is no template available but guidelines on what to include in the authority are available here.
|STP solution||Refers to an online software solution which reports STP data to the ATO. It may be a full-featured cloud-based payroll solution or a low-cost or no-cost solution (available only to micro employers and their registered agents) which may be app-based or web-based.|
|Update event||This is an electronic file generated by the STP-enabled software which provides payroll information to the ATO but is not associated with a payment to the employee.
This may be used to update YTD amounts to correct information previously incorrectly reported to the ATO, or to provide year-end information such as reportable fringe benefit amounts and reportable employer superannuation contributions.
Transitioning to STP
Many small employers will have a deferred start date, i.e. other than 1 July 2019. This may be because their software is not ready, or for other circumstances beyond their control.
The employer’s digital service provider (DSP) will be able to let them know which method (listed below) the employer should or can use when they start reporting through STP.
Available methods to start reporting through STP
- Provide an opening YTD balance for all employees (active, inactive and terminated) in an update event.
- Report YTD balances for all employees (active, inactive and terminated) in the first pay event.
- Report YTD amounts for current employees through a pay event and YTD amounts for inactive and terminated employees in a later update event which must be lodged by 14 July or the deferred due date.
- Report the current YTD balances for the current employees in the first pay event. Provide payment summaries to terminated and inactive employees and lodge a PAYG payment summary annual report to cover the payments made before the first pay event.
- Start STP reporting with zero YTD balances and provide payment summaries to all employees (current, inactive and terminated). Lodge a PAYG payment summary annual report for payments made before the first pay event.
|The Employer starts reporting through STP on 1 May 2019.
Their broad options for reporting the payroll information are as follows:
Payment summaries will still be required to be provided to employees by 14 July where:
- the employer is not reporting through STP for the full income year (i.e. the year in which they start STP reporting) and they choose not to report opening YTD data in the first STP report; or
- the employee receives reportable fringe benefits or reportable employer superannuation contributions and the employer chooses not to report these amounts through STP.
If you are not ready to start STP reporting by 30 September 2019, you will need to apply for a deferral. This can be done through the Tax Agent or BAS Agent Portal, or ATO Online services, or by the business through the Business Portal.
Micro employers (1-4 employees)
Low-cost and no-cost STP solutions
Micro employers who don’t need or want payroll or accounting software can choose a simple low-cost (no more than $10 per month per business) or no-cost STP solution. The ATO has published a list of the certified providers, and some basic product information, at www.ato.gov.au/STPsolutions.
Some of these solutions are also available to registered agents.
Quarterly reporting for micro employers is:
- available only through the employer’s registered agent, and the agent must lodge the quarterly STP report;
- available only for two years — from 1 July 2021, the micro employer will be expected to transition to payday reporting; and
- subject to conditions (see below).
The registered agent will need to lodge the quarterly STP report by the due date of lodgment of the BAS, and also complete W1 and W2 on the BAS.
Conditions for micro employers to report quarterly through their registered agent
To be eligible for quarterly reporting through a registered agent, the micro employer must satisfy the following conditions:
|Conditions for quarterly reporting for micro employers through registered agent|
||The employer will need to determine if they are a micro employer. They will need to have four or fewer employees at the time they apply for this quarterly reporting concession, based on the actual number of employees and not full-time equivalent.
Closely held payees do not need to be included in this count. For example, if the employer has four employees and also pay two directors, the employer is still considered to be a micro employer (i.e. for this purpose, they have four employees not six) and would be eligible for this two-year quarterly reporting concession.
They will not become ineligible for the concession if the number of employees increases to 5 or more, but the software solution may have its own limitations (i.e. not permit more than 4 employee records).
||There is no specific ATO guidance on this, but this two-year quarterly reporting concession is typically available to employers who:
This reporting concession is intended to support micro employers who need assistance and time to take graduated steps towards payday reporting and not those who simply want to delay.
||The employer must meet both of the following:
Employers with closely held payees
Employers with 20 or more employees with closely held payees
If the employer has 20 or more employees, they should be doing payday reporting for their closely held payees along with their arm’s length employees.
However, the employer has until 30 September each year to finalise their closely held payees’ information (instead of 14 July).
Exemption until 30 June 2020 for small employers with closely held payees
If the employer has 19 or fewer employees, they do not need to start reporting closely held payees through STP until 1 July 2020. However, all arm’s length employees must be reported as normal through STP from 1 July 2019 unless a deferral or exemption has been granted (this includes the deferred deadline for small employers of 30 September 2019).
Ongoing quarterly reporting concession for small employers with closely held payees
Beyond 1 July 2020, the employer with 19 or fewer employees will need to do payday reporting unless they report quarterly using an STP solution for their closely held payees (conditions apply). Each closely held payee covered by this concession will need to be notified to the ATO (the online form will be available soon from the ATO).
Under the closely held quarterly reporting concession, the employer:
- will be able to lodge an STP report on an ongoing quarterly basis;
- or their registered agent will need to lodge the quarterly STP report by the due date of lodgment of the BAS, and also complete W1 and W2 on the BAS;
- will complete the quarterly STP report by making a ‘reasonable estimate’ from which PAYG is withheld. A reasonable estimate can be calculated using one of the following methods:
- actual withdrawals taken by the closely held payee during the quarter (excluding payments of dividends and repayments of credit loans owed to the closely held payee);
- calculating 25 per cent of the remuneration from the previous income year;
- varying the previous year’s amount (to take into account trading conditions) within 15 per cent of the remuneration for the current income year;
- will have until the due date of their income tax return to finalise their closely held payees’ information (instead of 14 July).
Conditions for closely held reporting concession
To be eligible for ongoing quarterly reporting for closely held payees, the employer must satisfy the following conditions:
|Conditions for closely held reporting concession|
||The employer must:
||This concession does not apply to:
||Must meet both of the following:
Query — SG obligation
We have concerns that the making of a reasonable estimate under the closely held concession could constitute ‘ordinary times earnings’ for the purposes of the Superannuation Guarantee (SG) Charge. This could be problematic where an obligation to pay SG contributions to a superannuation fund arises from the making of an estimate which may change by the time the information is finalised after the end of the income year (and after the date by which the SG contribution was made).
We have raised this issue with the ATO and it is currently with the ATO’s legal team. It is hoped that the ATO will determine that the making of an estimate under this concession does not constitute ‘ordinary times earnings’ for SG purposes.
Employers with seasonal or intermittent employees
Some businesses have irregular employment patterns, such as those who employ seasonal or intermittent employees including shearers and fruit-pickers.
The ATO will provide further details soon, but broadly the ATO will make special reporting arrangements available to these employers who may find it difficult to do payday reporting. Under these arrangements, these employers will be able to lodge an STP report on an ongoing quarterly basis.
Conditions for seasonal or intermittent reporting concession
To be eligible for ongoing quarterly reporting for seasonal or intermittent employees, the employer must satisfy the following conditions:
Conditions for seasonal or intermittent reporting concession
||The employer or their registered agent must apply for this concession however if the employer has:
||Must meet both of the following:
ATO resources on STP
- Primary webpage for STP guidance: ato.gov.au/stp
- Employer reporting guidelines (recommended reading)
- No-cost and low-cost solutions for STP: ato.gov.au/stpsolutions
- News, events and resources which includes news, events, webinars and digital resources to help you understand STP.
TaxBanter resources on STP
Our previous blogs on STP include:
- Prepare now for Single Touch Payroll from 9 May 2018 which explains how STP works and provides a handy checklist;
- New annual registered agent authorisations for Single Touch Payroll from 9 October 2018 explains how the new STP engagement authority allows eligible employers to provide a signed authorisation to their registered agent who is lodging STP reports on their behalf only once a year instead of at each reporting event.
- It’s happening! Single Touch Payroll reporting for small employers from 29 March 2019 explains how STP will apply to small employers from 1 July 2019;
Tax Yak podcast
We also have two Tax Yak podcasts available on STP:
- Episode 17: Single Touch Payroll: A chat with the ATO from 16 April 2019 in which our host, Robyn Jacobson, chats with John Shepherd, former Assistant Commissioner of STP at the ATO (he has only recently departed the ATO after many years of leading the STP design team) about the implementation of STP;
- Episode 18: Single Touch Payroll: Q&A with the ATO from 18 April 2019 in which our host, Robyn Jacobson, chats with Michael Karavas, Director at the ATO and Design Lead of STP, in a Q&A format, addressing all your questions about the ATO’s approach to transitioning around 750,000 small employers into STP from 1 July 2019.
Joint TaxBanter–ATO webinar
- The recording of our STP webinar Single Touch Payroll – it’s happening! Are you ready to start reporting from 1 July 2019? presented on 27 March 2019 is available to purchase.
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