Single Touch Payroll (STP) Phase 2, which began on 1 January 2022, is an expansion of the ATO's payroll reporting system. Under this expansion, you'll report additional information to the ATO and clarify the payments you make to your employees. This also allows the ATO to provide information about your employees to Services Australia and eliminate the need for separation certificates.

Importantly, STP Phase 2 now requires you to report some payment types separately using new pay item categories.

Benefits for Employers:

• No longer send your employee's TFN declaration
• Concessional reporting (such as those for closely held payees) reported via income types.
• Lump Sum E letters for employee's no longer required; it's done through reporting.
• Ability to report in near real-time with Services Australia, which will help them streamline their services.

Major changes:

• The income categories now include ordinary earnings, allowances, bonuses and commissions, lump sum payments and directors' fees.
• Salary sacrifice amounts now need to be reported separately to the ATO. If you currently add salary sacrifice as earnings items, it may not be reported correctly if you don't update your payroll software.
• Paid leave will need to be categorized and reported to the ATO using leave type codes and cashed out leave will also need to be reported differently. Leave will no longer be included as ordinary earnings.
• Employers will also need to report the reason for any cessation of employment. This information will be provided to the ATO with the pay event and therefore a separation certificate will not be required to be provided to employees.
• Employers are currently required to submit a tax file number declaration to the ATO. Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.

It's important you conduct a review of your current pay items that to ensure correct reporting! For more information the ATO has provided an STP Phase 2 guideline, and a useful checklist to help you understand your employer obligations.

We're here to help if you need it, email stm@st-m.com.au or call us on 02 6024 1655.