The mandatory start date for STP Phase 2 reporting will be 1 January 2022.
There are actions that employers can take now to prepare for these changes:
· Given the more detailed payroll information that will be reported via STP phase 2, it would be prudent for employers to review the accuracy of these components.
· Employers should also start speaking with their software providers about the scheduling and project planning for the update of existing software to STP phase 2 by 1 January 2022.
It is important to remember that a l l STP-enabled solutions have different functions and updates for the expansion will be offered in different ways. What businesses need to do to set up will depend on what product is being used and how the payroll is managed.
What isn't changing
Business will need to report additional information through STP but the following is not changing:
· the way employers submit STP reports
· STP reports are still due on or before pay day unless the employer is eligible for a reporting concession
· the types of payments that are in-scope for STP reporting
· taxation and superannuation obligations
· end of year finalisation requirements.
What is changing
· Employment conditions - employment status, factors impacting the rate of PAYG withholding, reason for employee termination
· Income types and country codes - for international assignees and working holiday makers
· Disaggregation of gross - break down of all the amounts currently reported through STP as gross amounts
· Other changes - New lump sum W, changes to lump sum E, optional reporting child support payments
Employment conditions
Summary of chances and additions to reporting of employment conditions
Employers will not be required to submit a TFN Declaration to the ATO when employment conditions are reported through STP
By providing this new, expanded amount of fields, the payer will have met their obligation to send the tax file number declaration (TFND) details to the ATO. The information provided by the payee on the TFND is still given to the payer, but the payer may include these fields in their STP reporting instead of sending those details via another service or channel. For those payees not reported via STP, those stand-alone services or channels must still be used to provide the TFND to the ATO.
Detailed information for Employment conditions
Those fields that define the employment or engagement relationship between the payer and payee are now grouped together and include:
· Commencement Date - the start of the employment or engagement relationship between the payer and the payee
· Cessation Date - the end of the employment or engagement relationship between the payer and the payee
Employment Basis - the work pattern or other basis of the employment or engagement relationship between the payer and the payee
Cessation Type Code- the category of cessation reason for those payees that have ceased their employment or engagement relationship with the payer
· Tax Treatment Code - the structured code that represents the components of PAYGW that have been applied by the paver to the payees' payments subject to withholding
· Tax Offset Amount - the annual tax offset amount that some payees may provide to their payers to reduce the amount of withholding, when specific criteria or concessions apply. For example, invalid or invalid carer tax offset; or zone or overseas forces tax offset.
· Income type - The reporting of income types and country codes is being introduced to identify payments made to employees with specific tax consequences making it easier for the person to complete their individual income tax return. It will also help the ATO identify where an employer is using a concessional reporting arrangement, such as for Closely Held payees.
· Country Codes - Country codes will need to be reported about the home country of some of your employees. Those employees include those with the following income types:
- Foreign Employment - Australian residents for tax purposes are taxed on their worldwide income. If the payee worked overseas or provided services to an organisation located outside of Australia, payments must be defined both as Foreign Employment (if the qualification period is or will be satisfied) and Country Code where the work was performed, or the foreign entity is located (“host" country).
- Inbound Assignees to Australia - an inbound assignee who is seconded to work in Australia for an Australian entity but is employed by an offshore entity and is paid, in whole or part of their base salary and other remuneration, by an offshore entity. As the work performed in Australia may be subject to payroll taxes, superannuation guarantee and PAYGW, but not wholly paid by the Australian entity, the income must be reported by Country Code of the offshore entity (“home” country).
- Working Holiday Maker - those payees who have a specific class of Visa (417 and 462 only) to enable them to temporarily work in Australia must have their income reported by Country Code of their visa (“home" country).
Disaggregation of gross
Summary of Break-down of Gross Allowances and Salary Sacrifice under STP Phase 2
1 Individual Non-business
Details information about Break-down of Gross, Allowances and Salary Sacrifice
· Bonuses and Commissions Bonuses and commissions are typically paid as lump sum payments rather than at each regular pay period, as is the case for salary and wages:
- Bonuses - usually made to an employee in recognition of performance or services and may not be related to a particular period of work performed and are reported as Payment Type - Bonuses and Commissions.
- Commissions - usually made to an employee in recognition of performance or services and may be calculated as a portion of the proceeds or volume of sales and are reported as Payment Type - Bonuses and Commissions.
- Bonuses or commissions are paid in respect of overtime are to be reported as Payment Type Overtime.
- Salary Sacrificed bonuses and commission - If the bonus or commission is salary sacrificed, the value of the bonus or commission before the salary sacrifice must be reported as Payment Type- Bonuses and Commissions and the sacrificed amount reported as the relevant Salary Sacrifice Type (superannuation or other employee benefits).
· Directors Fees
- Directors' fees include payments to the director of a company, or to a person who performs the duties of a director of the company. Directors' Fees may include payment to cover travelling costs, costs associated with attending meetings and other expenses incurred in the position of a company director. Directors’ fees should be included in the Payer Total Gross Payments Amount field.
- Salary Sacrificed Directors Fees - If Directors Fees are salary sacrificed, the value of the Directors Fee before the salary sacrifice must be reported as Payment Type- Gross and the sacrificed amount reported as the relevant Salary Sacrifice Type (superannuation or other employee benefits).
· Paid Leave
The following 6 Paid leave Types have been defined:
Salary Sacrificed leave - All YTO amounts reported for paid leave must be the amount before any salary sacrifice is deducted and the sacrificed amount reported as the relevant Salary Sacrifice Type (superannuation or other employee benefits).
· Allowances - Under current STP rules some allowances are reported separately, and some are reported as part of gross. Under phase 2 all allowances will need to be reported separately, not just the allowances that are currently reported. This means that allowances previously reported as gross must now be separately itemised and reported.
The separately itemised allowances include the following types:
· Salary sacrifice - Employers will need to report salary sacrificed amounts through STP under phase 2.
Changes to superannuation guarantee taw that apply from 1 January 2020 mean that salary sacrifice contributions to superannuation are no longer be used to reduce ordinary time earnings or count towards the employer’s minimum superannuation guarantee obligations. By reporting salary sacrifice amount separately through STP the ATO will be able to identify where this rule is not being adhered to.
The salary sacrifice type codes are:
- S (Superannuation) - an effective salary sacrifice arrangement, entered into before the wort is performed, where contributions are paid to a complying fund, where the sacrificed salary is permanently forgone.
- O (Other Employee Benefits) - an effective salary sacrifice arrangement, entered into before the work is performed, for benefits other than for superannuation, where the sacrificed salary is permanently foregone (i.e. novated lease, gym membership etc)
· Overtime
Must be reported as Payment Type- Overtime and includes:
- TOIL - Some awards and registered agreements allow an employee to take paid time off during the ordinary span of hours instead of being paid overtime pay: time off in lieu (TOIL). If the absence is not taken, the employee may request that the accrued time be paid out at the overtime rates. The cash out of TOIL in service should be reported as Payment Type - Overtime. TOIL absence taken is Other Paid Leave (O) and unused TOIL pai d out on termination is an ETP.
- Call Back - call backs or recall allowances are when an employee has left the workplace or completed their ordinary time without any prearranged agreement to work overtime but is called back to work overtime.
- On Call - on call, stand-by or availability allowances to remain in readiness for a return to work, payable outside their normal working hours, is paid at penalty of overtime rates. This does not, however, include those on-call or stand4by allowances, payable in circumstances where an employee is working normal working hours to be ready to perform other urgent tasks those payments should be reported as Allowance Type-KN (Task Allowances)
- Commissions on Overtime - that are wholly referable to overtime hours worked.
- Leave Loading In Lieu - leave loading that is demonstrably referable to a notional loss of opportunity to work overtime is not ordinary time earnings and should be reported as Payment Type - Overtime
- Identifiable Overtime component of Annualised Salary - for those annualised salary or wages amounts that have distinctly identifiable components within the outer limits that are expressly referable to overtime hours. This is only where the annualised salary is expressly stated as a sum of specific itemised components that includes an overtime component
- Hourly Driving Rates or Rates/km - the excess of the total ordinary hours per period
- Overtime Bonuses - payable in respect of overtime only
- Part Time Additional Hours - payable in accordance with industrial instruments that stipulate those additional hours are paid at a penalty or overtime rate
- Excess Travelling Time - payable at overtime rates for travel to an alternative place of work outside the ordinary span of hours
Do not include:
- Shift Penalties - are not to be reported as overtime, as these payments are payable on ordinary hours of work and are ordinary time earnings. This includes shift penalties for weekends, public holidays, morning, afternoon or night shifts. These shift penalties are compensation for moving the ordinary hours of work outside of the span of hours stipulated in the industrial instrument and are not overtime. Shift penalties should be reported as Payment Type- Gross Amount.
- Flexible Time Off - flexible working hours is an arrangement to work the ordinary hours of work outside the span of hours stipulated in the industrial instrument, or for hours in excess of the hours ordinarily permitted per day, to be taken at a later time at the ordinary rates of pay. The additional hours worked are ordinary time earnings and are not paid at overtime rates. It should be reported as Payment Type - Gross Amount.
- TOIL absence taken - is not overtime and should be reported as Paid Leave Type -O
- Rostered Days Off - RDOs cashed out in service are not overtime and should be reported as Paid Leave Type – O
- RDOs taken - are not overtime and should be reported as Paid Leave Type-O
· Gross (Other)-There are a range of payments that may be included in gross, but not limited to the following:
- Ordinary hours - this usually refers to the payment of attendances at the workplace that do not further distinguish the nature of the activities performed by the payee.
- Casual loading - the additional loaded rate to acknowledge the uncertainty of employment or engagement of work and the lack of many paid leave entitlements. This rate is discretely identified as I separate from the base rate.
- Shift penalties - the additional penalty rates that are paid for working the ordinary span of hours at a roster that schedules those hours other than during the standard day span of hours of Monday to Friday. The penalty rates are typically in the form of a percentage of the base rate and may include penalties for morning, afternoon or night shifts, continuous shifts, sleepover or 24 hr care rosters or weekend and pub1ic holiday rosters.
- Breach of Rest Break - Where the employee does not get a 10-hour (8 hour for shift workers) rest break after working overtime and, under instructions of the employer, must resume working their normal ordinary hours. The employee must be paid at overtime rates until the employee is released from duty, even though they are working "ordinary hours”.
- Travel time - there are many tasks and activities that may be compensated at the base rate but are referenced in the industrial instrument discretely to specify the additional circumstances under which the payee must be paid. This must be within the ordinary span of hours, including rosters and shifts that attract penalties and does not extend to overtime.
- Training time - as for travel time, this is another typical task and activity that may be compensated at the base rate, but is referenced in the industrial instrument discretely to specify the additional circumstances under which the payee must be paid.
- Piece rates - some industrial instruments define the basis for payment in terms of a measurable outcome, such as for amounts picked, packed, pruned or made, rather than hours worked. These are known as piece rates and the-re are a range of specific protections and requirements to manage those paid via this method. There may be rates inclusive of penalties or loaded rates. Whilst those components should be discretely identified, the range of piece rate remunerations are a part of gross. This does not include overtime.
- Charge rates - for business and personal services payees, there may be an agreed rate for work performed, outcomes achieved, targets met or other measure for services. These type of payment bases may include non-ca.sh benefits that must also be reported as gross
Employers win not be required to provide employees with a Separation Certificate Where an employee reports an payments as shown above, there will not be a requirement to provide the employee with a Separation Certificate. Services Australia will already have the required information as reported through STP.
Other changes for STP Phase 2
New lump Sum W The return to work payment that occurs in extremely limited circumstances and is taxed concessionally was formerly reported in STP under Payee gross. It now joins the lump sum payment types in separately itemised reporting.
Lump Sum E financial year indicator negates need for employer letter A financial year indicator has been added to lump sum. If you make a lump sum E payment, each financial year relevant to the lump sum E amount paid must now be included in the STP report prior to the end of year finalisation. This will eliminate the need for employers to provide lump sum E letters.
Reporting previous Business Management Software IDs and Payroll lDs Employers will now be able to provide the ATO with previous Business Management Software IDs and Payroll IDs in through STP where there has been a change. This might occur when there has been a change of business structure or where a business has changed software and does not have the ability to zero out or finalise the previous records.
Child support garnishees and Child support deductions Employers will have the option to include Child support garnishes and Child support deductions in STP reporting which will reduce the need for separate remittance advice reporting to the Child support registrar.
Whilst phase 2 will be rolled out slowly it is proposed that there will be a mandatory requirement for all of these components to be included in payroll software by 1 January 2022. This requirement will most likely not apply to low-cost software designed for micro employers and other affected groups that are yet to be determined.