There are many factors to help you work out the correct amount to withhold from your employees’ pay. These may be based on information they provide in their TFN declaration or withholding declaration, or their employment information.
You must now report this information in each STP report, reflecting any changes to their employment basis.
You already provide some of this employment information to the ATO via STP, such as employees’ commencement and cessation dates.
By including this information in your STP report, in most cases you will no longer need to send TFN declarations to the ATO or provide employment separation certificates when your employees leave.
You do not need to get new TFN declarations from your current employees to start reporting through STP Phase 2. Any new employees still need to provide you with their TFN declaration that you need to keep for your records.
Identifying employees in your STP report
You must provide either a TFN or Australian business number (ABN) for each payee included in your STP report. If you have not been provided with the employee’s TFN you must use the TFN exemption codes.
When you report a payment and withholding for a contractor under the voluntary agreement (VOL) income type, you must provide the contractor’s ABN. The contractor’s TFN is not required.
If a payee is a contractor and employee with the same Payroll ID within the same financial year you must report both their ABN and TFN.
You must report your employees’ commencement date. If you do not know their commencement date, you can report a default date of 01/01/1800.
You must report information about your employees’ employment basis according to their work type:
Full time (F) – a person who is engaged for the full ordinary hours of work as agreed between the payer and the payee or set by an award (or both), registered agreement or other engagement arrangement. A full-time payee has an expectation of continuity of the employment or engagement on either an ongoing or fixed term basis.
Part time (P) – a person who is engaged for less than the full ordinary hours of work, as agreed between the payer and the payee or set by an award (or both), registered agreement or other engagement arrangement. A part time payee has an expectation of continuity of the employment or engagement on either an ongoing or fixed term basis.
Casual (C) – a person who does not have a firm commitment in advance from a payer about how long they will be employed or engaged, or for the days or hours they will work. A casual payee also does not commit to all work a payer may offer. A casual payee has no expectation of continuity of the employment or engagement.
Labour hire (L) – a contractor who has been engaged by a payer to work for their client. Income for contractors only, does not include employees.
Voluntary agreement (V) – a contractor with their own ABN who has entered into a voluntary agreement with a business to bring work payments into the PAYG withholding system. To do this a contractor would normally complete a Voluntary agreement for PAYG withholding (NAT 2772) form.
Death beneficiary (D) – the recipient of an employment termination payment (ETP) death beneficiary payment who is either a dependant, non-dependant or trustee of the estate of the deceased payee.
Non-employee (N) – a payee, such as a contractor, who is not in scope of STP for payments but may be included in STP for voluntary reporting of super liabilities only.
An employee may have one Payroll ID, but more than one employment basis.
Your STP Phase 2 report will include a 6-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling us about factors that can influence the amount you withhold from payments to your employees
Reporting this information through your STP report means that when your employees give you a TFN declaration you no longer need to send a copy to the ATO. It will also allow the ATO to notify your employee if they have provided you with incorrect information which may lead to them getting a tax bill at the end of the year.
Your STP solution will automate the reporting of these codes and ensure that the tax treatment code you report is valid. Even though the creation of this code will be automated for you, it is still part of your STP report. It is important for you to understand what it means.
The following table shows the components of the tax treatment code.
Components of the tax treatment code
|Category of tax (character 1)||Options per category (character 2)||Are study and training support loans (STSL) (character 3) and Medicare levy variations (MLV) (characters 4–6) permitted?|
|STSL is only permitted for T (tax-free threshold) or N (no tax-free threshold). Report S at character 3. Otherwise report X at character 3.
MLV is only permitted for T (tax-free threshold). Refer to tax tables for when different kinds of variation are permitted.
|C (horticulturists and shearers)||
|S (seniors and pensioners)||
|H (working I holiday makers)||
|W (seasonal worker program)||
|F (foreign resident)||
|N (no TFN)||
|V (voluntary agreement)||
You can’t report all possible combinations from the table above because sometimes the characters represent options which are not available in all circumstances. For example, if you have a full Medicare levy exemption, you can’t also have a Medicare levy reduction.