- Single Touch Payroll will affect all Australian businesses from 1 July this year
- Transition challenges include concerns over data and meeting reporting deadlines
- Glynn Flaherty, one of Australia’s leading payroll experts, will present workshops on the payroll function in May
Small employers will be required to transition to the single touch payroll (STP) system from 1 July 2019. This comes after employers with more than 19 employees on the payroll were required to begin their transition from 1 July last year.
The new STP system was designed to create efficiencies by allowing employers to submit much more timely information to the ATO, streamline reporting, and help identify excess welfare payments or prevent tax debts in real time.
In theory, STP promises to make end-of-year reporting and tallying much easier. But the transition to the new system has come with many challenges, including concerns over cost, software capability and for some, privacy, says director of Payroll Matters Pty Ltd, Glynn Flaherty.
With larger employers 8 months into the transition, what can we learn from their experiences so that accountants can help their smaller clients overcome them?
Concerns over the data challenge
The Payroll data requirements under STP differ from what is in place pre-STP in terms of both what must be reported and the formatting rules that apply to that data.
New fields must now be set up to handle additional reporting requirements under STP and there are specific formatting rules that apply in terms of field length, naming and even the alphanumeric characters that are acceptable. "It is not just a matter of transferring your old data across to start reporting under STP," Flaherty advises.
STP also brings us a new reporting protocol on how the data must be compiled and sent to the ATO. The challenge some employers have experienced so far is that not every software provider is offering an end-to-end service, meaning a third party service provider is required to rework the payroll data produced by the software, so that it can be correctly submitted to the ATO, says Flaherty.
When it comes to engaging a third service provider, some employers have expressed concerns over data privacy and the costs of having to pay an additional amount for the lodgement service.
While concerns over cost were identified early in the design of STP and the ATO liaised with industry to ensure there were cost-effective end-to-end solutions, decisions to transition from one payroll software provider to another is no small feat, especially as the existing provider’s software is likely to be embedded throughout the functions of the business, with payroll sometimes being only a small part.
For very small employers though, there will be an ATO list published in March containing low cost or no cost solutions offered by commercial providers and focused on micro businesses with one to four employees. "Low cost solutions of $10 per month are expected and these can suit those who do not currently have any payroll software product in use," says Flaherty. "However many small employers will already have financial software solutions in place with an STP function which can be configured in conjunction with their tax or BAS agent."
Meeting reporting deadlines
While the new STP process does not affect payment deadlines to the ATO, the real-time reporting requirements present challenges of their own. The new process requires reporting to the ATO on or before the day someone gets paid, which may be especially difficult for small employers such as sole traders in the construction industry.
"If you're a small employer that pays tax to the ATO monthly, you keep paying the same way. But if you pay staff weekly, you have to report what you paid on or before the day payment is made to the employee."
Given this concern, ATO Commissioner Chris Jordan has announced a range of measures to assist. These include allowing micro employers using a registered tax or BAS agent to report quarterly rather than each time staff are paid, for the first two years of STP.
Compliance date just around the corner
By 1 July this year all businesses# will need to be compliant by either having end-to-end software or having worked out a process to include a third party service provider. This will need to work effectively in order to provide reporting to the ATO prior to or on the day each employee is paid.
# Micro employers have an automatic deferral until 30 September 2019 to commence.
What we learned from the behaviour of the larger employers that had to comply from 1 July 2018 was that this is a bigger transition than expected. Many in fact found that their software was not ready and deferrals by the ATO through their software providers were granted. March 31 this year has been a common deferral date.
As at February 2019, the ATO reports that 56% of large employers have implemented STP. "While we expect that this was mainly caused by software STP readiness issues, we do anticipate that the sheer number of small employers to come on board from 1 July this year will mean many smaller employers will want to defer," says Flaherty. To this end, the Commissioner has announced that the ATO will grant a deferral to any small employer who requests additional time. There will also be no penalties raised in the first year.
"With approximately 710,000 small businesses otherwise affected by the 1 July 2019 deadline, a transitional progression will be better for everyone to handle, including the ATO and accountants," says Flaherty, as the large volume will put stress on the system and resources.
The ATO's single touch payroll system is a more simplified type of the one originally proposed back in 2014, but we can expect that once the initial version is running satisfactorily there will be enhancements to increase the reporting that is carried out and the need therefore for further software modifications to comply.
Accountants must remember that while there is no penalty for the first year of transition, now is a critical time to get equipped with the knowledge and tools to help clients adopt STP effectively.
Questions to consider for each client:
- What software do they use and is it STP ready?
- Is their software an end-to-end reporting solution or will a third party service provide be required?
- What changes to the payroll data are needed to allow importation into STP?
- What additional reporting fields will apply? For example, allowances, superannuation, etc.
- When will the client go live with STP or is a deferral recommended?
- Who will undertake the STP lodgements with the ATO? The client, the tax/BAS agent, etc.
Glynn Flaherty is one of Australia's leading payroll experts and he will be presenting our Managing the Payroll Workshops in Australian capital cities from May.
Managing the Payroll Function Workshop
Join us to get equipped with the knowledge and tools to help your clients through the STP transition.Find out more
Strategic Tax Planning Day
Discuss and explore how to strategically plan for the next financial year to maximise tax outcomes for your clients. Register today to attend our Strategic Tax Planning Day on 31 May.Find out more