STP Phase 2: What Australian Employers Need to Know in 2022

Single Touch Payroll (STP) Phase 2 represents a significant shift in payroll reporting for Australian employers. Building on the foundations of Phase 1, STP Phase 2 introduces expanded reporting requirements aimed at streamlining tax and superannuation reporting processes. As of 2022, all Australian employers must comply with STP Phase 2 regulations. This article outlines the key changes, compliance requirements, and steps for a smooth transition to ensure your business is prepared.

What is STP Phase 2?

STP Phase 2 is an extension of the original STP initiative introduced by the Australian Taxation Office (ATO) in 2018. While Phase 1 focused on reporting employee salaries, wages, and superannuation directly to the ATO each pay cycle, Phase 2 expands this to include more detailed information about employees, such as employment conditions, tax treatments, and income types.

Key Objectives of STP Phase 2:

• Reduce the need for manual reporting by employers.
• Streamline employee tax and income reporting.
• Improve data matching between government agencies.

Key Changes in STP Phase 2 Reporting

STP Phase 2 introduces several new data requirements for employers, which include:

1. Disaggregation of Gross Income – Employers must now report different income types separately, such as bonuses, allowances, overtime, and leave payments, rather than a single gross amount.
2. Expanded Employment and Income Details – Reporting must now include employment basis (e.g., full-time, part-time, casual), cessation dates, and reason codes for terminations.
3. Tax File Number (TFN) Declarations and Other Forms – Phase 2 eliminates the need to submit TFN declarations and employee separations manually, as these will be captured within STP reporting.
4. Child Support Deductions and Garnishments – These now need to be reported through STP, eliminating separate reporting to the Child Support Agency.

Impact on Employers

STP Phase 2 significantly impacts how employers handle payroll, requiring more comprehensive data collection and accurate payroll processing systems. Employers must update their payroll software to be compliant with Phase 2 requirements. For businesses not using payroll software, manual processes must be updated to capture the additional data required.

Steps to Ensure Compliance:

• Upgrade Payroll Software: Ensure that your payroll software is STP Phase 2 compliant. Most payroll software providers have updated their systems to accommodate the new requirements.
• Review Employee Data: Conduct a thorough review of your current employee data to ensure it aligns with the new reporting requirements. This includes verifying employment types, income types, and tax treatment codes.
• Provide Training: Educate your payroll and HR staff on the new reporting requirements and how to use updated payroll systems.
• Stay Informed: Keep up-to-date with any additional guidance from the ATO or your payroll software provider to ensure ongoing compliance.

Penalties for Non-Compliance

Non-compliance with STP Phase 2 can result in significant penalties from the ATO. Penalties are typically calculated based on the size of the business and the length of non-compliance. To avoid penalties, employers must ensure they transition to STP Phase 2 promptly and accurately.

Transitioning to STP Phase 2: Key Tips

To facilitate a smooth transition to STP Phase 2, consider the following tips:

1. Conduct a Compliance Audit: Review current payroll processes to identify gaps that need to be addressed for Phase 2 compliance.
2. Engage with Software Providers: Work closely with your payroll software provider to understand the new features and functionalities added to support Phase 2 reporting.
3. Prepare Early: Start preparing as early as possible to avoid last-minute rushes and potential errors in reporting.
4. Seek Professional Advice: If unsure about any aspect of STP Phase 2, consider consulting with a payroll or tax professional to ensure compliance.

Conclusion

STP Phase 2 is an important step toward streamlining payroll reporting for Australian employers. With more detailed reporting requirements, employers must update their systems and processes to stay compliant. By understanding the changes and preparing early, businesses can benefit from a more efficient payroll system and avoid penalties.