What is STP Phase 2 and what does it mean for healthcare providers?

Introduced in the 2019-20 Budget, the Government announced Single Touch Payroll (STP) will be expanded to include additional information.

FOR ALLIED HEALTH PROVIDERS, THIS MEANS CHANGES IN THE PAYROLL DATA THEY WILL BE REPORTING TO THE ATO ON A REGULAR BASIS.

Some software packages have been granted a deferral on the start date (such as Xero), meaning customers reporting STP using their payroll system have until 31 March 2023 to report their first STP Phase 2 pay run, instead of the 1 January 2022 ATO deadline.

THE MAIN CHANGES UNDER THIS SYSTEM INCLUDE:

•    Tax file number declaration – employers are no longer required to send the ATO their employee’s TFN; rather, the employees will provide it to you, and you’ll need to keep it with their records.
•    Income type and country codes - you already tell the ATO about the type of income your employees receive in your STP report. The reporting of income types is being introduced in Phase 2 to offer more flexibility: 
   
  •    Identify payments you make to your employees with specific tax consequences.
  •    Make it easier for them to complete their individual income tax return.
  •    Help the ATO identify where you are using a concessional reporting arrangement.
•    Termination reason - specifying a reason for termination will be mandatory when an employee finishes their employment. Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO.
•    Paid leave – this won't be included as part of gross earnings when reporting earnings via STP. You’ll still need to report leave payments made to your employees in your STP report.
•    Allowance types – allowances, such as a travel allowance paid to therapists, will need to be itemised and reported separately in your STP Phase 2 report.
•    Directors’ fees - if you pay directors’ fees, you must include these separately in your STP Phase 2 report. This includes payments to: 
   
  •    The director of a company.
  •    A person who performs the duties of a director of the company.
  •    A member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated.
•    Lump Sum W (Return to work) payments - a return to work amount is paid to induce an employee to resume work. This is a new category of lump sum payments. Previously, they were reported as gross and not individually identified.
•    Tax treatment codes - your STP Phase 2 report includes a six-character tax treatment code for each employee. This is an abbreviated way of telling the ATO about factors that can influence the amount you withhold from payments to your employees.
•    Bonuses and commissions – like allowances, these will need to be reported separately.
•    Lump Sum E payments - this is used when you make lump sum payments for back pay from prior income years. Previously, this was shown on a separate line item in an employee’s payment summary. STP Phase 2 requires these payments to be reported with the tax year they originated in before finalising an employee’s records. This removes the need to provide employees with Lump Sum E letters.

While there is an increase in the information being broken into individual categories, the way you submit STP reports will not change.