Starting on July 1, 2018, Australian businesses with 20 employees now have to comply with the STP or the Single Touch Payroll initiative. These same businesses are expected to have conducted a headcount of their employees on April 1, 2018 to determine their reporting requirements. But what exactly is STP and are you ready for it?
Brief Background of STP
The Single Touch Payroll (STP) was introduced by the Australian Tax Office (ATO) after the passage of the Budget Savings (Omnibus) Bill 2016.
The intent of this initiative is to streamline payroll administration as well as give real time information on an organization’s payroll practices. Once it takes effect on July 1 or July 1, 2019 for businesses with 19 employees and under, PAYG (Pay As You Go) and super information will have to be submitted after it is paid compared to previous practices when it was done monthly or quarterly.
This was passed with the goal of promoting transparency in the reports submitted to the ATO. This also allows ATO to pre-fill the BAS (W1 & W2). As for the employees, they will now be able to access payment summaries online through myGov. This does not only benefit employees, but companies as well since this means they no longer have to give end-of-year summaries to employees.
Because of STP, payroll information is sent electronically to the ATO the exact moment employees are paid. This requires organizations to have a direct link to the ATO through an authorized service provider. This link must be connected to a payroll system that is able to comply with STP requirements.
Why You Might Need to Update Your Payroll System
Prior to this initiative, the procedure for reporting payroll information to the ATO was tedious. It was often done through manual sending of data to the ATO. Some companies upload the data through computers while a considerable number still use paper forms. Deadlines are set by the ATO for the submission of payment summaries to their employees.
While there are organizations that use software for automated payroll systems, especially if they have a large volume of employees, these systems are not STP-enabled. These systems must be updated with features to make them STP-compliant. If it is not possible, they will have to select a new software provider that can make them STP-compliant.
Employers must now seek Standard Business Reporting (SBR)-enabled software that is capable of electronically transmitting report payroll and superannuation information to the ATO. Organizations can scan through the ABSIA product catalogue to find the needed software or software providers. They may also opt to use the services of a third party bookkeeper/accountant that is able to comply with the STP requirements.
How to Ensure Compliance
The first thing that must be done is to determine the number of employees. Only substantial employees or those with 20 or more employees on their payroll as of April 1, 2018 are covered by the initiative. This headcount is not based on the full-time equivalent. It covers full-time employees, part-time employees, casual employees, those based overseas, those on leave, those who are absent and seasonal employees.
Exceptions and Deferrals
Another thing to look into would be exceptions which the ATO grants on a limited basis. A business may be exempted if it is located on a rural area with no reliable internet connection. It also exempts those that are substantial employers only for a short period of the income year. In these cases, it is advisable to apply for exemptions. Guidelines for exemption applications may be found in the ATO website.
The ATO also is aware that digital service providers (DSPs) may not be STP-ready by the date of effectivity which is why it allows deferral grants to DSPs. It will issue a deferral reference number to the DSP which will apply to its clients. This means that if your software provider is granted a deferral, you need not apply to the ATO for a deferral or exemption.
Using STP-ready Software
If your organization employs 20 or more employees and your present DSP does not qualify for a referral, then you ought to obtain STP-ready software. Before you do this, you must make sure that your payroll system’s software is the most upgraded version. The next thing to be done is to gain access to the ATO Access Manager. The Access Manager allows a company to access and avail of the ATO website’s online services which include the Tax Agent Portal, BAS Agent Portal, Business Portal and Australian Business Register (ABR). The Access Manager also allows Administrators, from the businesses, to decide which online serves can be accessed by its employees.To be able to get into the ATO Access Manager, you need an AUSkey or an ABN connected to your myGov account. This can be done by registering for a AUSkey at the ATO website.
At this point, different software providers will have different instructions on how to set up the STP functions on your payroll system. For example, the software MYOB requires you to apply for Online BAS lodgement Services through the Access Manager. It then only requires the latest version of MYOB’s Account Right for the STP feature to be installed. It appears as an icon called “Payroll Reporting.”
There are many software providers and accounting firms that can help you comply with STP. Aside from MYOB, these include Deloitte, KeyPay, Sage, Wichwon, Addax and Xero among others. You may have to consult with them for the best packages for your company’s needs and for any additional steps or requirements.
Getting Deeper on Software Options
To meet your compliance obligations, you can choose among the following choices:
1. Upgrade to an STP-compliant solution from existing payroll software provider.
Most software providers have already released solutions to make sure that their software are compliant. You need to check first with your software provider. If they already released their solution, upgrading to the latest version must be done quickly to reduce the final upgrade path.
2. Upgrade to an STP-compliant solution from a new payroll software provider.
3. Stay with your non-compliant payroll solution and apply for an exemption from the ATO.
If you are located in a rural area with poor internet connectivity, or you only have 20 or employees for a short period of the income year, you can apply for an exemption from the ATO. Then you can wait until your payroll solution complies with the new regulations from the ATO.
4. Stay with your non-compliant payroll solution and apply for a deferral from the ATO.
Another option is to apply for a deferral, which can be made possible if the payroll solution is not yet ready for STP reporting, the business has entered administration or liquidation, impacted by natural disaster, or affected by circumstances beyond your control.
Because tax and payroll information is being transmitted electronically, it makes it vulnerable to attack, whether it be theft or misuse. In response to this, the ATO mandated that tax information that is stored in the cloud use two-step authentication (2SA) by the end of 2018. 2SA acts an added defensive layer in that it requires a password, username and a unique code to be generated on a second device. All these are done to make unauthorized people unable to access the data. Thus, it is advisable as well to check if the software that you will be using for STP will be protected by 2SA.
STP promises to make lives easier for everyone: the government, the employees and for you, the businesses. But just like in any transition from an outdated mode of doing things, like submitting payroll and tax data manually to a modern means of doing the same, the experience may be confusing and difficult. However, this does not have to be the case.
Now that you know that STP compliance boils down to the simple matter of selecting a software provider that deals with the complicated issues, you’ve ticked off the first item in the checklist, and you’re off to doing better things with your new payroll system.
Contact us on 1300 728 875 or visit https://www.darcyservices.com.au if you have any questions.