What employers should consider

It is always good practice to review how your business constructs payments for employees. We recommend you specifically start to review Allowances.

To better understand the new changes that may affect how you need to report for STP2, we recommend you refer back to The ATO Employer Guidelines which provides great examples.

There are new categories and changes to definitions that have been introduced for STP2. You will start to notice that simple categorisation of allowances is no longer sufficient, as previously in STP1 most allowances were reported in Gross with only a few reported separately.

There are now 9 separate categories for allowances. A couple of new ones have been introduced which are Qualification and Certification allowance (allowance type QN) and Task Allowance (allowance type KN).

IMPORTANT CHANGE: Instead of categorising an allowance on ‘what’ is being paid, we need to consider 'why' it is being paid. This is important as the data that is sent for STP2 reporting is required by Services Australia to be analysed for a wide range of varying benefits that they calculate for many differing situations, and ‘why’ is now important – not because of its description or how it is taxed; hence there are new categories to consider.

EXAMPLE: 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 First Aid Allowance is for performing duties and not just based on having the First Aid qualification and therefore it would be categorised as a Task allowance (KN) and not as a Qualification allowance (QN).

This is a very clearly explained example in the ATO’s Employer’s Guide – under Allowances.

DECISION: Using the example above – familiarise yourself with the Allowances section of the ATO’s Employers Guide and review your Allowances in your system and see if you can work out 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.

What employers should consider

Overtime is when your employee works extra time.

The ATO Employer Guidelines include good examples on some of the finer and more complex situations around when overtime may not actually be overtime.

IMPORTANT CHANGE: You may be surprised to learn that in some specific situations, the payment of Leave Loading would be classified as Overtime and not as Paid Leave.

Within the ATO Employers Guidelines they explain the difference and where your business has paid leave loading historically, it will be necessary to review to make sure that it is being reported according to the correct category.

• Leave Loading categorised as overtime – where it is clearly linked to a notional loss of opportunity to work overtime, otherwise.
• Leave Loading is categorised as Paid Leave.

What employers should consider

Salary Sacrifice and how this is reported is changing with STP2.

IMPORTANT CHANGE: The values that previously reduced the Gross value reported to the ATO are now required to be reported separately.

In addition, to be clear on the type of salary sacrifice that is in place it is defined between 2 types of categories. Superannuation Salary Sacrifice – type (S) and all other Salary Sacrifice deductions – type (O).

DECISION: Review how you categorise salary sacrifice in your payroll solution, as all payments that relate to Superannuation are required to be identified when reported under the new STP2 requirements.

As part of the design of our solution, we have considered how best to manage some of these changes for you. A number of these will be included in future releases

Listed below are some of the areas that will be automated to assist in your transition to STP2.

Tax Treatment – this ATO term relates to the detail of how employees are being taxed in your payroll solution.

• A new 6 character code has been created to identify all the taxation scenarios for every employee paid.
• Based on the tax setup in each employee’s record, this new Tax Treatment code will be automatically created and is a summary (in code form) of the taxation setup for an employee.
• This option replaces the tax file declaration data that was previously sent when an employee first was paid in STP1.

Tax Declaration – A tax declaration form is still a requirement to begin employment and must still be completed by the employee and submitted to the employer to know how to tax their pay.

Income Types – this ATO term relates to the type of employee and how the income is derived and taxed.

• There are additional income types that have been created for reporting for STP2
• Based on the Tax File Declaration form – the Income Type is derived for most employees, for example where an employee.
• Is an Australian Resident and claims the Tax Free threshold (their primary job) then they would be classified for STP2 reporting with an Income Type of Salaries and Wages (SAW).
• Where an employee is a Foreign Resident and is a Working Holiday Maker then they would be classified with an Income Type of Working Holiday Maker of FEI and (WHM).

Based on the setup of every employee in your payroll solution, an Income type will be created and displayed and will need to be reviewed.

There are new types that your business could be utilising and will need to classify where these are relevant

The ATO Employer Guidelines explain all the changes that are needed for STP2 Reporting.

The Access Group will be providing a range of services and resources to assist in the transition to STP2 reporting in 2022.

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