STP Phase 2: How will the new reporting requirements impact your business?
On 1 January this year, STP Phase 2 came into effect, introducing a raft of new reporting requirements that will have a significant impact on how you run your payroll.
While STP Phase 2 is officially underway, many businesses like yours may have been given compliance deadline deferrals from your payroll provider due to the complexity of the new reporting requirements.
In the leadup to your compliance deadline, it’s critical that your business starts preparing now so you can effectively manage the transition and ensure all bases are covered. In this article, we explore the STP Phase 2 reporting changes that will impact your business the most, and provide guidance on how you can best prepare.
The impact on Gross: What employers should consider
One of the key areas of change relates to the values that were previously reported in Gross.
If you’ve been following the latest ATO updates on the new STP Phase 2 reporting requirements, you will have started to hear that STP Phase 2 is all about the Disaggregation of Gross, New Tax Treatments, and Income Types. You can view a comprehensive overview of the reporting requirements in The ATO Employer Guidelines.
What is the change to Gross?
To put it in simple terms, the values paid to an employee are now ‘dissected further’ into groupings that both Services Australia and the ATO need. Hence, the new requirement to ‘Disaggregate’ the gross value currently reported.
So, STP Phase 2 is heavily based on this new requirement to ‘Disaggregate the Gross’ value you are currently reporting. The change follows similar reporting that can be displayed on an employee’s pay advice.
Example of how this works
When paying an employee, it’s no longer about providing the just gross value . The various components of pay that the employee is being paid need to be provided so that the employee understands what they worked and are being compensated for.
What should you do?
The new changes for Disaggregation of Gross will be spread across all the various pay components in your payroll system and given the fact that no two businesses are the same, it’s critical you review the ATO’s Employer guidelines, that have been crated to assist you.
On the back of your review, it is likely you will need to make changes to other systems that input into payroll. Ensure that your software enables you to make these changes for the new STP Phase 2 reporting requirements and that you have enough time to implement them.
The following are the new categories that require reporting and were previously included in Gross:
- Allowances and subcategories
- Paid Leave
- Overtime
- Bonuses & Commissions
- Directors Fees
- Lump Sum
- Salary Sacrifice
The impact on Allowances: What employers should consider
It’s always good practice to review how your business constructs payments for employees, and we recommend that you specifically start to review Allowances.
STP Phase 2 has introduced new categories and changes to definitions. You will start to notice that simple categorisation of Allowances is no longer sufficient, as previously in STP Phase 1, most Allowances were reported in gross, with only a few reported separately.
There are now nine separate categories for Allowances, including new ones like Qualification and Certification Allowance (Allowance type QN) and Task Allowance (Allowance type KN). So, this is where you might want to engage with your employment layer or payroll provider for guides, training events or webinars.
What is the change to Allowances?
Instead of categorising an Allowance on ‘what’ is being paid, we need to consider ‘why’ it’s being paid. This is important as the data that is sent for STP Phase 2 reporting is required by Services Australia to be analysed for a wide range of varying benefits that they calculate for many situations. The ‘why’ is now important – not because of its description or how it’s taxed, hence there are new categories to consider.
Example of how this works
If we use a First Aid Allowance as an example:
- On the surface, this Allowance looks to be paid because the employee has a first aid qualification and is the nominated first aid person in your company.
- The core requirement for the First Aid Allowance is that the individual is performing duties, rather than simply in possession of a first aid qualification. Therefore, it would be categorised as a Task allowance (KN) and not as a Qualification allowance (QN).
This is a very clearly explained example as outlined in the ATO’s Employer Guidelines, under “Allowances.”
What should you do?
Using the example above, familiarise yourself with the Allowances section of the ATO’s Employers Guide and review your Allowances in your system to see which categories they will fall into.
Where unsure, you may have to seek further clarification from your own employer contracts, potentially Fair Work Awards or an Employment lawyer.
Impact on Overtime: What employers should consider
For clarity, overtime is when your employee works extra time. Again the ATO Employer Guidelines includes good examples of the more complex situations where overtime may not actually be overtime.
What is the change to Overtime?
You may be surprised to learn that in specific situations, the payment of Leave Loading will be classified as Overtime and not as Paid Leave. The ATO Employer Guidelines provides an explanation of the difference between the two.
You will need to review any historical instances where your business has paid Leave Loading to ensure it will be reported according to the correct category. Going forward, Leave Loading must be categorised as Overtime; that is, where it’s clearly linked to a notional loss of opportunity to work overtime. Otherwise, Leave Loading must be categorised as Paid Leave.
What should you do?
If you pay employees under a Fair Work Modern Award, then any payment of Leave Loading should be reviewed to decide which category you must use. In some cases there may be a need to have two Leave Loading pay components, where you have employees that are paid in both scenarios. Make sure you review your pay components and check what changes are required. And make sure you have enough time to implement these changes so you can identify and separate payments into the correct categories.
The impact on Salary Sacrifice: What employers should consider
STP Phase 2 has introduced new Salary Sacrifice reporting requirements that you will need to understand to ensure compliance.
What is the change to Salary Sacrifice?
The values that previously reduced the Gross value reported to the ATO now must be reported separately. In addition, Salary Sacrifice is now broken into two categories: Superannuation Salary Sacrifice – type (S) and all other Salary Sacrifice deductions – type (O).
What should you do?
Review how you categorise Salary Sacrifice in your payroll solution, as STP Phase 2 reporting requires that all payments relating to superannuation must be identified.
Want to know more?
Looking for a payoll partner to help you through compliance events such as STP Phase 2? More about how we can give you STP2 Compliance with Confidence.
Access Customers
