Single Touch Payroll consequences

Single Touch Payroll (STP) is now mandatory for most employers, though there remains concessional reporting for small and family businesses.

STP replaces annual PAYG Payment Summaries (group certificates) being sent to the ATO with instead, every single payslip effectively being reported to the ATO whenever you process a payroll. The ATO trumpet this as a streamlining of employer’s reporting obligations but in our view, it creates additional regulatory burdens for small businesses.

Beyond the additional compliance STP creates for small businesses my two biggest problems with it are as follows:

Adjusting payroll

STP has serious limitations in adjusting or correcting prior period pays. If at the end of the year a business owner realises they accidentally over or underpaid themselves, you can no longer make a 30 June adjustment in the annual accounts.

I can understand the rationale for unrelated employees, but business owners and directors have long drawn money out of the business and declared this as a wage at the end of each quarter or year.  You now have 14 days to correct an error. If you request a correction beyond the 14 days you may be liable for a penalty for making a false or misleading statement.

As a side note, from 1 July 2019 there have been further changes that deny a tax deduction if you do not correctly withhold tax. For example, if you declare a director’s fee of $10,000 at 30 June and do not withhold PAYGW, you cannot claim the $10,000 as a tax deduction.

Automatic Enforcement of late super

Super contributions must be received by the employee’s superannuation fund by the 28th day following the end of each quarter.

Late payment has always meant that the employer is required to complete a “superannuation guarantee charge declaration”, pay interest on the late payment and then lose the tax deduction for the entire super contribution.

With mandatory STP reporting and the mandatory Super Stream, the ATO now knows exactly what super to expect by each due date. And if you are late by even a day you will be heavily penalised.

I have no issue with punishing employers who do not pay their employee’s super, but small administrative errors resulting in large tax penalties are unfair. Especially as the payment failure may be due to the third party superstream provider.

So… what can you do?

On the first point, we recommend planning your tax well in advance of the end of the year, and budgeting any wages.

We also recommend processing super payments as early as possible e.g. immediately after the end of the quarter – rather than waiting the 4 weeks you’re allowed. If cashflow allows, processing super monthly will further reduce your chance of getting stung by these changes.

As always, contact your advisor if you have any questions.