Single Touch Payroll (“STP”)

Single Touch Payroll (“STP”) is a reporting framework that streamlines employers’ reporting obligations to the Australian Taxation Office (“ATO”) and other government agencies.  In this blog, we take a closer look at this mandatory reporting obligation.

 What is STP?

Employee payroll information is digitally reported, in real-time, to the ATO through STP-enabled payroll or accounting software, each pay cycle.  Payroll information includes:

• salaries and wages;
• pay as you go (“PAYG”) withholding; and
• superannuation.

STP does not change an employer’s pay cycle.  Employees can continue to be paid weekly, fortnightly or monthly.  ATO systems match STP information to employer and employee records.  Employees that have a myGov account linked to ATO online services, will be able to see their year-to-date tax and super information.  Data is updated every time an employer reports, which is generally each pay cycle.

Employers may report through:

• an existing (or newly acquired) STP-enabled payroll or accounting solution (e.g. Xero, MYOB, Quickbooks etc);
• a no-cost or low-cost solution (available to a “micro employer”, see below); or
• outsourced to a registered tax or business activity statement (“BAS”) agent or a payroll service provider.

STP originally applied to entities with 20 or more employees, but was extended to all employers from 1 July 2019.  Depending on the business, industry, or employer type, several concessions were granted, however most of these ended on 1 July 2021. 

Warning:  Penalties may apply to those employers that have not yet started reporting through STP and who do not have a deferral or exemption.

The ATO has published employer reporting guidelines outlining those payments that must be reported through STP (see here).

End-of-year finalisation

Employers can finalise their STP data by making a finalisation declaration.  

A finalisation declaration is a declaration, in the approved form, lodged by 14 July each year, indicating that an employer has fully reported for the financial year.  A finalisation declaration is made by providing a finalisation indicator for an employee (and directors, contractors, etc.) as part of the STP reporting process.

It can be made for an employee at any time during the financial year (for example, employees that have ceased employment), or after the end of the financial year up to 14 July.

If a finalisation declaration cannot be made by the due date (14 July), a deferral will need to be applied for.

Once the finalisation declaration is complete, employers can proceed to inform their employees so that they can prepare and lodge their individual income tax returns.

This finalisation process is explained in detail in the STP employer reporting guidelines, including amendments for current and previous financial years (see here).

Employers with closely held payees

Employers with 20 or more employees, should be reporting closely held payees each pay day, along with arms-length employees.  The finalisation due date for closely held payees is 30 September each year.

For small employers (19 or fewer employees) who only have closely held payees, the due date for end-of-year STP finalisation will be the payee’s income tax return due date.

For an employer with a mixture of both closely held payees and arms-length employees, the due date for end-of-year STP finalisation for closely held payees is 30 September each year.  All other employees are due 14 July each year.

STP expanded data collection

An announcement was made in the 2019-20 Federal Budget to expand the data collected through STP. 

This expansion (also known as STP Phase 2) reduces the reporting burden for employers who need to report information about their employees to multiple government agencies, including Services Australia.

One of the major changes is that employers will need to provide extra information in their STP report regarding employment conditions.  This includes information on an employee’s employment basis (for example, full-time, part-time or casual); tax treatment to validate a businesses’ PAYG withholding obligation; as well as information for exiting employees that will reduce the need for a business to provide separation certificates.

Employers will report the additional information through STP on or before each pay day.  The mandatory start date for STP Phase 2 reporting will be 1 January 2022.

For employers already lodging through STP-enabled software, there is nothing further that needs to be done at this time.  Employers that have not previously been required to lodge through STP or are not yet using STP-enabled software should be getting ready to do so.  The ATO is working closely with digital service providers to update STP-enabled software, noting that not all digital service providers will be ready by 1 January 2022.  (A deferral framework is in place for digital service providers to apply for a deferral.  This deferral would cover their clients.)

The deferral process for employers will be available from 1 October 2021 and more information will be provided by the ATO in due course.  The ATO will consider applications on a case-by-case basis.

More information about STP Phase 2 is available here.

Ceasing STP reporting

An employer may no longer be required to lodge STP reports if their business:

• no longer has employees;
• has ceased trading;
• has changed structure;
• is not paying employees for the rest of the year; or
• is paused due to COVID-19.

The process for notifying the ATO of the cessation of STP reporting will depend on the situation.

STP reporting deferrals and exemptions

Depending on the circumstances, employers may be able to apply to the ATO (directly or via a registered tax or BAS agent), for a deferral or an exemption from STP reporting.  As noted above, a number of exemptions previously available ended on 1 July 2021.

Deferrals

There are deferrals for employers that commence STP reporting and/or that submit particular reports.  These include:

• Transitional deferral

A transitional deferral is available for those employers needing more time to get ready for STP reporting.  Note that deferrals will only be considered for those with exceptional circumstances.

• Operational deferral

An operational deferral is available for those that have already started reporting through STP, and will not be able to report for a period of time due to special circumstances.

• Recurring deferral

A recurring deferral is available for employers with special circumstances affecting their ability to regularly report on, or before, a pay day.  This deferral allows employers additional time (up to a maximum of 3 business days) to lodge each STP report, without being penalised for late lodgement.

• Unreliable or no internet service deferral or exemption

A deferral or exemption may be available for employers based in an area where there is no internet connection, or the connection is unreliable.  Employers will be asked to provide evidence.

Exemptions

There are limited reporting exemptions for a particular financial year or for certain types of employers, employees and payments.  An exemption for a particular year only applies for that year and a new exemption must be obtained for the next year.

Employers that are exempt from STP reporting, must continue to comply with their existing PAYG withholding obligations, including, reporting and paying their PAYG withholding and super guarantee liabilities, providing employees with payment summaries and lodging a payment summary annual report with the ATO.

• Exemptions for certain employers

Employers with a withholding payer number (“WPN”) are exempt from STP reporting for all financial years from 2018-19 to 2021-22.  For these employers, payments must start to be reported through STP from 1 July 2022.

Employers that decide to make use of this exemption do not need to apply to the ATO.  However, records must be kept to support the basis for their application of the exemption.

• Exemption that is not listed

The ATO will consider granting an exemption for reporting through STP for a financial year or a particular employee or group of employees.

The following information must be included in the exemption request:

• the number of employees on the payroll;
• the reasons why STP reporting is not possible;
• any steps taken to attempt to get ready for STP; and
• any supporting evidence.

STP concessional reporting options

The STP concessions available depend on the number of employees.

By taking a headcount, employers can work out how many employees they have; each of the following count as one employee:

•  full-time employees;
• part-time employees;
• casual employees;
• employees based overseas; and
• any employee absent or on leave (paid or unpaid).

The following should not be included in the headcount: 

• employees who have ceased working for an employer;
• independent contractors;
• staff provided by a third-party labour hire organisation;
• office holders;
• religious practitioners; and
• closely held payees, such as, family members of a family business, directors, or shareholders of a company and beneficiaries of a trust.

Tip – Mixture of Employees Where there exist a mixture of employees and closely held payees (who are excluded from the headcount), employers are still considered to be a “micro employer” where there are one to four employees.

 Subject to the satisfaction of any eligibility criteria, two concessional reporting options available to help employers transition to STP include:

•  Micro employer – Quarterly Reporting Concession

Micro employers that need more time to move to STP reporting can apply for the quarterly reporting concession.  The concession approves quarterly reporting for two years through a registered tax or BAS agent.

From 1 July 2021, the quarterly reporting concession will only be considered for micro employers experiencing exceptional circumstances.

•  Closely held payees

Small employers were exempt from reporting amounts paid to closely held payees through STP until 30 June 2021.

From 1 July 2021, in scope amounts paid to all payees (including closely held payees) need to be reported through STP (see here).  Amounts that are not in scope for STP reporting do not need to be reported.

The need to report through STP depends on how the payment is classified, not who the recipient is.  The same person may receive payments during a year that are classified differently.

Examples of amounts that may be paid to a closely held payee include:

Payment Type	STP Reporting Required
Salary or wages	Yes – in scope for STP
Directors’ fees	Yes – in scope for STP
Distributions to a beneficiary of a trust	No – not in scope for STP
Dividends paid to a shareholder	No – not in scope for STP
Loans provided by the business	No – not in scope for STP

Employers must keep accurate business records that demonstrate the type of amount(s) paid to closely held payees, regardless of whether these amounts are in scope for STP reporting.

 As employers may not always pay closely held payees a regular salary or wage, they may choose any of the following concessional reporting options:

•  report actual payments on or before the date of payment;
• report actual payments quarterly; or
• report a reasonable estimate quarterly.

The due date for lodgement of the STP report will align with the due date for the lodgement of the BAS, inclusive of any extended lodgement concessions which may apply to the employer’s circumstances.  If the employer reports quarterly, the STP report is due at the same time as the quarterly BAS.  If the employer lodges a monthly activity statement to report its PAYG withholding or GST, the STP report is due at the same time as the activity statement for the last month of each quarter, that is, September, December, March and June.

ATO Factsheets

The ATO has produced the following summary factsheets as a handy resource: 

• STP – An introduction for small employers
• STP Checklists (‘Get ready checklist’ and ‘Start reporting checklist’)
• Notifying the ATO of your software service ID
• How to access your income statement