Let’s talk about Single Touch Payroll updates for Xero, plus some additional updates to the way you and your small business accountant access this popular tool.
What is Single Touch Payroll (STP)?
Single Touch Payroll refers to the way small businesses report payroll activity to the Australian Tax Office (ATO).
Businesses used to report payroll activity to the ATO once a year. Now, a report is sent after each payday. Reports must be submitted digitally and follow a specific format.
In the past, employees received a payment summary at the end of the year, which they then needed to refer to when creating their tax return. Now, payment summaries can be found via the myGov portal. Under STP these are now referred to as income statements.
One of the easiest ways to be STP compliant is to use Xero to create payroll reports. If you have an accountant and bookkeeper, they will do this for you.
Single Touch Payroll Phase 2
Where the first STP changes introduced a new way of reporting your employees tax and super to the ATO, STP Phase 2 expands the program to involve reporting the individual components that make up an employee’s pay, rather than reporting just a single gross amount.
Under STP Phase 2, you will be required to report additional information to the ATO. According to Xero, the main areas to be aware of relate to the following:
Tax file number declaration: These declarations share an employees tax file number as well as details on employment type such as full time or casual, and the factors that influence how tax is withheld (such as HELP debt). All this information is included in an STP report, via an automated, six-character tax treatment code. As part of STP Phase 2, the ATO will no longer need to receive TFN declarations.
Termination reason: In the past, employee separation certificates were required. Now the reason for someone’s departure (e.g. voluntarily leaving or being made redundant) can be provided via an STP report.
Employment basis: Under the changes, it is now mandatory to report an employee’s type of employment (full time, part time or casual). The type of employment basis has been expanded to cover labour-hire, non-employees or voluntary agreements.
Income stream collection: Phase 2 will require employers to break down payments into more detail under a new grouping called income stream collection. This has three main areas:
Income types: Income is now broken down into categories including:
- Salary
- Wages
- Working holiday makers
- Labour hire
Country code: If you employ people on working holiday or similar visas, you will have to include a country code in payroll reporting.
Disaggregation of gross: Total payment (gross) reporting will now be broken down into categories as well. The categories include:
- Allowances
- Bonuses and commissions
- Director fees
- Overtime
- Paid leave
- Salary sacrifice
Salary sacrifice: Information about salary sacrificing needs to be separately reported in STP.
Lump sum E payments: Previously, lump sum back payments were shown on a separate line item in an employees payment summary. In Phase 2, this type of payment must be included in STP reports.
Benefits of STP Phase 2
As shared by the Australian Tax Office, the latest STP changes mean:
- Employers no longer have to send in their employees’ tax file number (TFN) declarations to the ATO. Your employees will provide the declaration to you, and you’ll need to keep it with your employee records.
- You’ll be able to tell the ATO if you are using a concessional reporting option
- Your business won’t need to provide Lump sum E letters to your employees.
- There is less risk of duplicate statements showing up in the ATO’s online services through myGov.
- Employment separation certificates are redundant as the reason and date for termination are captured in STP reporting.
- If you choose to disclose child support deductions and/or garnishees via STP you may not be required to send separate remittance advices to the Child Support Registrar.
As an employer, you will still need to complete an annual lodgement (.i.e.. STP Finalisation) in addition to weekly lodgements. Once submitted, the ATO will publish an income statement to the employee’s myGov account, which they can access by logging in and viewing in their records. This replaces the previous payment summary that was issued to employees.
There is a lot to take in, especially if you’re managing your payroll yourself. To ensure you’re compliant with STP Phase 2, it makes sense to work with a reliable small business accountant who will take care of all reporting requirements for you.
Further changes to Xero
If you log into Xero yourself, you will have noticed it requires MFA (multi-factor authentication).
On the 6th of October 2022, the ATO made an update to MFA regulations, this means anyone that accesses an Australian organisation globally needs to re-authenticate their device every 24 hours when logging in to Xero.
You have previously been able to select, ‘Remember me on this device’ and skip authentication for 30 days when signing in to Xero via MFA (such as through the Xero Verify, Google Authenticator or Authy apps). With the latest update, you will need to re-authenticate your trusted device (such as laptop, tablet or phone) every 24 hours.
The purpose of the change is to improve cybersecurity and protect the sensitive financial information of your business and staff.
You can read more about the MFA change here: https://www.xero.com/blog/2022/09/mfa-changes-for-au-customers/
Want to know more about Single Touch Payroll and Xero? Reach out to the Gold Coast’s leading small business accountants today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
