What is STP and STP Phase 2?

You are probably all familiar with the green “file” button in Xero payroll - this was part of the first iteration of Single Touch Payroll Reporting (STP). The ATO is now extending the reporting capabilities of this and has termed it STP2 or STP Phase 2.

STP Version 1 was designed for the ATO to know on a regular basis more information about the amounts that you have paid to your employees. The original version was very limited in the data it reported - it also signified the end of the concept of a “group certificate” or PAYG Payment Payment summaries as employee wages are now all electronically reported.

STP Version 2 will extend the reporting capabilities of what STP Phase 1 was reporting. The ATO now is expecting to see data about Parental Leave, Workers Compensation, Allowances and Bonuses and other pay items and taxes in much greater detail. There are also some changes to required reporting such as no longer needing to send TFN Declarations to the ATO as the STP phase 2 reporting will capture this data anyway.

In short, big brother wants more data, at the time of paying wages, and is in turn trying to make things easier.

When does this change take effect?

If you are using Xero - Xero was granted a deferral for being STP Phase 2 Compliant until December 2022. However, Xero is beginning to roll out some of the required changes now to allow people to be ready for when the deferral ends. The start date for Xero customers to be lodging STP Phase 2 is 1st of January 2023, which surprisingly is only just around the corner!

If you are not using Xero for payroll the phase 2 reporting date was the 1st of January 2022, so if you use a system such as Keypay or Employment Hero make sure you refer to their own STP Phase 2 documentation for what to update.

Some of the changes have already been implemented for example if you have completed any termination pays you will have noticed that you now need to provide a termination reason for end of employment. Another item you may have noticed is “Cashed out leave” this is another item that Xero has implemented as part of STP Phase 2. We expect that between now and December 2022 there will be more minor changes occurring similar to these.

The required changes to your payroll will be dependent on the different pay types that you use for your employees - for example if you use allowances or bonuses as pay items there will be changes required to these pay items.

Xero are actively building a migration tool that will allow your items to be moved from STP Phase 1 compliance to STP Phase 2.

Why is this changing & Why does it Matter?

The ATO in recent years have really been trying to crackdown on non-compliance and non-payment of debt and employee entitlements. In 2020 and 2021 the ATO relaxed their pursuit of this due to the pandemic however now as trade and business is returning to normality they are beginning to ramp up the focus again.

Longer term it is likely that this ATO data will be used for things like determining if businesses are reporting wages properly, if they are registered for appropriate taxes (e.g. Payroll Tax) and ensuring that superannuation payments are being made on time.

It also allows for the ATO to gather more data in a timely manner on the state of things like employment and remuneration figures instead of having to wait until the end of a quarter or end of financial year.

Basically the ATO wants to have more data for decision making but also wants to ensure that all businesses are adhering to their compliance requirements.

The ATO will be monitoring compliance with STP Phase 2 - they have already been sending letters to other providers that were not granted deferrals if their systems have not been updated.

What will we do for you?

If you are a Growthwise client, we’ll be updating your Xero payroll to be compliant with STP Phase 2. There are quite a few changes that need to be made here to ensure that things are done correctly, so we want to take the time to ensure that everything is updated correctly.

What do you need to do?

We will be sending you a checklist from Karbon requesting information on your employees including things like employment agreements and contracts so we can start the transition process for you.

Once we have the requested information we’ll work through Xero’s STP Phase 2 prerequisites before making the required changes. It’s important to note that STP Phase 2 reporting is being gradually rolled out in the Xero Payroll product, so we expect to have a few things to update over the next few months.

Expect one of our bookkeeping team (Beau, Joseph, Nicko or Carina) to be in touch over the coming few months to ensure you are all up to date before 1 January.

If you want some more detail Xero have a handy video on some of the changes happening now. You can check that out below.