The deadline for employers with fewer than 20 employees to implement Single Touch Payroll is fast approaching. Unless you are exempted, you must implement this change by 1 July 2019.
If you are an employer with 20 or more employees, then you should already have implemented Single Touch Payroll.
What is Single Touch Payroll?
Single Touch Payroll (STP) is a new way to report your employees’ payroll information directly from your payroll software to the Australian Taxation Office (ATO). Instead of lodging annual PAYG Payment summaries (formerly known as Group Certificates) once a year, you lodge payroll data for every single pay run you process.
When you use STP-enabled software, it will automatically send the relevant payroll information to the ATO each time you pay your employees. Your pay cycle does not need to change – you can continue to pay your employees weekly, fortnightly or monthly.
The payroll information which must be reported to the ATO includes:
- Salary and wages
- Director remuneration
- Allowances
- Employment Termination Payments (ETPs)
- Accrued leave payments
- Parental leave payments
- Pay As You Go (PAYG) withholding
- Superannuation contributions
What does this mean for you as an employer?
This change will restrict your ability to adjust salary and bonuses after a pay run is processed. This includes adjustments we have previously been able to make when preparing your business’ tax returns and financial statements after the end of the financial year.
It also gives the ATO more data about your business than they’ve ever had before. This will allow them to cross-check whether you’ve paid the correct superannuation contributions for your employees, by the due date, in real time.
We expect the number of superannuation audits to increase off the back of this change. It is now very important that all superannuation payments are received by the super funds by the due date. Failure to do so will prevent you from claiming the super contributions as a tax deduction, and may leave you exposed if you are audited.
Who is exempted?
The ATO has announced that they will provide a one-year exemption to 1 July 2020 for ‘closely held payees’. A closely held payee is a non-arm’s-length, directly related employee (e.g. family members of a family business, directors of a company and shareholders or beneficiaries).
How do these changes affect payments to contractors?
It is not mandatory to report payments made to contractors under STP. However, if you currently report payments to contractors through your payroll software, you should continue to do so under STP. Where the contractors are managed outside of your payroll system (e.g. through accounts payable) you do not have to report payments to them under STP.
How does this change impact your payroll software?
If you currently use non-STP-enabled payroll software, you will need to ensure it is updated by your service provider to be STP-enabled. If you use Xero for payroll, it is STP ready.
If you don’t currently use any payroll software, please get in touch with us and we can assist you to find the best solution for your business. Xero have announced that they will be releasing a new payroll-only product for up to 4 employees for $10 per month. If you already have a Xero subscription, you can add payroll to a ledger or GST cashbook subscription for up to 4 employees (cost to be announced).
What are the risks for employers?
With the implementation of STP, the ATO will have access to up-to-date payroll information throughout the year, and won’t be reliant on BAS lodgments to identify PAYGW withholding liabilities.
The ATO have advised that from 1 July 2019, businesses can only claim deductions for payments made to workers where they have met their PAYG withholding obligation for that payment. This means that the business must withhold the amount from the payment before they pay their employee and report that amount to the ATO. Some exemptions may apply in certain circumstances, such as if you make a mistake in the pay run.
Do you require any further assistance?
If you have any queries or need any further information in relation to STP, please contact your Prime Partners advisor.