Single Touch Payroll Phase 2 is on its way and this article covers off everything you need to know and what you need to do to get your business up and running. STP Phase 2 expands on the mandatory reporting requirements to the ATO, providing specific additional employee details to the ATO and other government agencies like Services Australia.
The deadline for implementing STP Phase 2 is Friday 31 March 2023.
What are the benefits of STP Phase 2?
- Automating TFN declarations straight to the ATO, saving you plenty of administration
- Employers are no longer required to provided Lump Sum E (separation certificates) letters to employees
- Streamlining of government benefit requests between the ATO and Services Australia, making it easier for employers/employees to interact with Centrelink and Medicare.
What are the actual changes when introducing STP Phase 2?
- Tax Codes. Each employee will now have a six-character tax code based on their digital TFN declaration.
- Breakdown of income. There are quite a few changes including gross income, paid leave, cashed out leave, salary sacrifice (this can no longer be used to reduce ordinary earnings, it needs to be reported separately in an STP event), directors fees, overtime, bonuses, commissions, return to work payments and backpay.
What do I need to do to implement STP Phase 2?
Xero has created a clever STP Phase 2 dashboard that can be found under Payroll / Single Touch Payroll / STP Phase 2. Or follow this link for a detailed guide to the update.
1. Update Employee Records
This first step enables transition of existing payroll employee records to STP Phase 2. Each employee record requires:
- Employment type
- Income type
- Employment basis
- Tax scale
2. Replace earnings pay items
Our best tip is to use the Xero guide for this step. Step 2 relates to replacing pay items and making sure the right pays are going to the right places.
3. Update leave pay items
You will need to assign a leave category to each of your active leave pay items in your organisation. This helps determine how payment is reported to the ATO through STP Phase 2.
4. Switch to Phase 2 reporting
Once you’ve completed the first three steps, you’ll be able to join Phase 2 reporting in the Xero STP2 Portal.