Single Touch Payroll (STP)
Single touch payroll is the biggest change for small business since the GST was introduced. It is a monumental shift towards real-time reporting to the ATO.
There are benefits to business which I will outline below. However, if you take a holistic view as to why STP has been legislated:
- It is a more efficient way to run the taxation system, which means it costs the government less money chasing non-compliant employers. The government is committed to reducing red tape by $1billion a year - STP is one such measure to support this.
- It is another step towards clamping down on the black economy - at least in theory.
- Chris Jordan, the ATO commissioner has stated “…. It’s part of that digital world, also that people do have to realise that everyone is going digital.”
- Superfunds will be reporting to the ATO, providing a cross matching opportunity for the ATO to ensure employees are paid their correct entitlements.
- It streamlines the reporting processes – you can action your reporting to the ATO immediately after the payroll event – avoiding the need for action later.
- Errors are minimised – the ATO will be able to pre-fill business activity statements (BAS) – labels W1 & W2 for employers. This reduces the potential for human error and avoids double handling.
- Payment summaries are eliminated – the ATO will now automatically track the figures and make them available through online services. Employers no longer need to generate and distribute payment summaries to employees.
- Access to new employee information will be improved –a positive for employers as they will be able to attain tax file number and superannuation information on new employees directly from myGov. There is no more chasing employees that don’t provide the information when asked.
- Encourages digitalisation - evidence shows that businesses who embrace new technologies fare best.
- When you run your payroll, your employees’ salaries, tax and super information must be reported to the ATO.
- You are required to have STP enabled payroll software.
- 1 July 2019 is the start date for employers with less than 20 employees.
- Your employee’s superannuation fund details must be included in the reporting to the ATO.
If you have 4 or less employees, and you don’t currently use payroll software, there will be other ways to report your STP information.
Some software developers have developed low-cost STP solutions, including phone apps and portals.
Micro employers also have the option to use a registered tax or BAS agent to report their STP information quarterly, rather than each time you run payroll. This option will be available until 30 June 2021.
Closely held payees are directly related to the entity from which they receive payments, for example:
- family members of a family owned business
- directors or shareholders of a company
- Trustees are beneficiaries of trust
If you fit this category, there will be flexible reporting options. In summary:
- 2019/20 financial year, you can report your wages at the time you lodge the entity’s annual tax return.
- 2020 onwards – you will need to report quarterly.
In summary, payroll software should simplify the employee wages payment process. Good software involves three steps:
- Login - to get yourself into the software.
- Click “run payroll” - runs the payroll for the relevant period and creates an ABA file for a bank payment.
- File - submits the data to the tax office and closes out your compliance obligations.
The ATO have indicated recently that only 30% of small businesses are ready for single touch payroll.
The ATO website is full of handy information.
We have a house view in relation to STP best practice. Given time is running short, we recommend you contact us to discuss your options, and without any fuss, we can get you compliant with STP.