Single Touch Payroll (STP) Phase 2 is an expansion of the ATO’s payroll reporting system, and it started on 1 January 2022. Under this expansion, you’ll report additional information to the ATO and clarify the payments you make to your employees. This also allows the ATO provide information about your employees to Services Australia and eliminate the need for separation certificates.
STP Phase 2 now requires you to report some payment types separately using new pay item categories.
The income categories now include ordinary earnings, allowances, bonuses and commissions, lump sum payments and directors’ fees.
Salary sacrifice amounts now need to be reported separately to the ATO. If you currently add salary sacrifice as earnings items, it may not be reported correctly if you don’t update your payroll software.
Paid leave will need to be categorized and reported to the ATO using leave type codes and cashed out leave will also need to be reported differently. Leave will no longer be included as ordinary earnings.
Employers will also need to report the reason for any cessation of employment. This information will be provided to the ATO with the pay event and therefore a separation certificate will not be required to be provided to employees.
Employers are currently required to submit a tax file number declaration to the ATO. Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.
You should conduct a review of the pay items that you are using to ensure they are going to be reported correctly with the new phase 2 requirements.
Contact us if you would like help preparing for STP Phase 2.