The ATO has outlined some common questions and mistakes to help employers report accurately through Single Touch Payroll (STP) Phase 2.
Setting up your pay codes or categories
When you’re setting up for STP Phase 2 reporting, you’ll usually need to re-map your pay codes or categories. How to do this will depend on the product you use.
Some common mistakes when setting up your pay codes or categories include:
- incorrectly selecting ‘not reportable’ or ‘do not report to the ATO’
- not maintaining continuity of year-to-date amounts from your STP Phase 1 reporting.
Incorrectly selecting ‘not reportable’ or ‘do not report to the ATO’
When you’re assigning STP Phase 2 reporting categories to each of your pay codes or categories, many products will have an option such as ‘not reportable’ or ‘do not report to the ATO’.
Many employers select this option incorrectly.
Generally, all amounts paid to employees should be reported to the ATO. However, there are some exceptions.
You should only choose ‘not reportable’ or ‘don’t report to the ATO’ for amounts that are covered by those exceptions, such as:
- travel allowance below the ATO’s reasonable amounts
- overtime meal allowance below the ATO’s reasonable amount
- post tax deductions except for those you need to separately identify.
If you choose ‘not reportable’ or ‘do not report to the ATO’, you’re choosing not to include these amounts in your STP report. This means:
- The ATO won’t display this information on your employee’s income statement
- these amounts will not be shared with Services Australia.
This means you won’t have met your reporting obligations and it can impact your employees’ tax, super or social security outcomes.
Not maintaining continuity of year-to-date amounts from your STP Phase 1 reporting
When you transition to STP Phase 2 part-way through the financial year, you need to identify whether you need to maintain continuity of year-to-date (YTD) amounts you have already reported.
In most cases, you do need to maintain continuity of your YTD amounts unless you are using the replacing payroll IDs method for transitioning to STP Phase 2.
Different solutions will manage this in different ways:
- some solutions will transition your YTD amounts for you
- some solutions may require you to manually copy or input the existing YTD amounts.
If your solution requires you to manually copy or input your existing YTD amounts to maintain continuity, a common mistake is not bringing over all the YTD amounts that you need to.
Make sure you remember to copy or input all your YTD amounts into their appropriate STP Phase 2 reporting categories. Comparing your first STP Phase 2 reports with your last STP Phase 1 reported amounts can help you make sure that you have remembered everything.
You may need to speak with your digital service provider if you need help.
Employment and taxation information
Your STP reporting includes employment and taxation information that:
- is important for providing context to the payments you make
- enables some of the interactions you and your employees have with government agencies to be streamlined.
A common mistake when reporting employment and taxation information in STP Phase 2 is omitting cessation date and reason.
Omitting cessation date and reason
When an employee leaves, you must include their cessation date and reason in your STP Phase 2 reporting. Omitting these is a common mistake.
In general, your STP Phase 2 reporting should contain a cessation date and reason for an employee when there are also payments that are connected to termination, such as:
- Employment termination payments (ETPs)
- Unused leave on termination (paid leave type U)
- Lump Sum A, B or D.
Include the cessation date and reason even if you may rehire the employee in the future. If you do rehire the employee, you can remove the cessation date and reason from your STP report the next time you pay them.
The ATO will share your employees’ cessation dates and reasons included in your STP report with Services Australia. Having this information already available reduces Services Australia’s need to:
- contact you for this information
- require you to complete an employment separation certificate.
Income types and country codes
Each amount you pay to an employee will now be assigned to an income type in STP Phase 2, and for some income types you must also include a country code.
A common mistake when reporting income types and country codes in STP Phase 2 is incorrectly reporting the ‘na’ country code.
Incorrectly reporting the ‘na’ country code
Some employers reporting country codes in STP Phase 2 are using the code ‘na’ to mean ‘not applicable’. Where you are required to report a country code, you cannot report ‘not applicable’ and you must report the country code relevant for that employee.
‘na’ is the country code for Namibia. If you report ‘na’, this will tell the ATO that your employee is either working:
- overseas in Namibia
- in Australia and they are from Namibia.
If the employee does not have a connection to Namibia, reporting that they do can make it more difficult for them to manage their tax obligations.
STP Phase 2 has introduced the disaggregation of gross. As part of disaggregation of gross, all allowances need to be separately reported. There are new allowance categories and it’s important that you review the allowances you pay to understand where they should be reported in STP Phase 2.
Some common mistakes when reporting allowances in STP Phase 2 include:
- incorrectly reporting amounts using the Other allowances category
- not separately reporting all-purpose allowances.
Incorrectly reporting amounts using the ‘Other allowances’ category
In STP Phase 2, there are 8 specific allowance categories and a category called ‘Other allowances (allowance type OD)’. A common mistake in STP Phase 2 reporting is using Other allowances (allowance type OD) to report things which do not belong in that category.
You must report allowances in their appropriate category because each category is treated differently for tax, super and social security purposes. Only report an amount as Other allowances (allowance type OD) if it’s an allowance that does not belong in one of the 8 specific allowance categories.