Everything you need to know about STP Phase 2

After 3 years of Single Touch Payroll (STP), it’s now time for STP Phase 2, which will see businesses build on their existing STP process to share more information with the ATO each time you post your pays for more streamlined reporting.

The expansion of STP, also known as STP Phase 2, will reduce reporting burden for employers who need to report information about their employees to multiple government agencies. It will also help Services Australia’s customers, who may be your employees, get the right payment at the right time.

The mandatory start date for Phase 2 reporting was 1 January 2022. However those of us using Xero can take advantage of their reporting deferral that has extended the deadline for Xero users to 31 March 2023.

Xero is rolling out STP Phase 2 across three stages over the next few months. This means that every employer reporting through STP in Xero will need to proceed through each stage of the process to ensure your payroll data meets STP Phase 2 compliance.

We recommend that you complete each stage as they are released in Xero so you can be ahead of the curve. Of course if we manage your payroll for you then we can help you with this.

Key changes in Phase 2

Most of the additional information you need to report should already be captured in Xero.

Employment and taxation conditions

There are many factors that influence how you manage your employees in your payroll, including their employment basis, the information on their TFN declaration and the details of when and why they leave.

You currently provide this information in different ways and on different forms. However Phase 2 streamlines this process by including the information in your STP report.

Income types

The reporting of more detailed income types is being introduced in Phase 2. This will more flexibly identify payments you make to your employees with specific tax consequences, and make it easier for them to complete their individual income tax returns.

Child support garnishees and child support deductions

You’ll have the option to include child support garnishees and deductions in your STP report. This will reduce the need to give separate remittance advices to the Child Support Registrar.

Xero’s Phase 2 rollout

Stage one – Delivered in August: The first part of this process is transitioning your existing employee profiles to be STP Phase 2 compliant. This means providing new details on existing staff, like whether they’re an employee or contractor.

Stage two – Rolling out late September: You’ll need to identify and update certain pay items with the new earnings categories defined by the ATO for STP Phase 2 reporting.

Stage three – Coming soon: This is the final step in the STP Phase 2 transition and will break paid leave down into additional subcategories.

Start planning for your transition now

While you have until March 2023 to make your Phase 2 changes, it’s best to start as soon as possible. However if you need more time beyond the Xero deferral you can request an additional deferral from the ATO. We can also apply on your behalf as your registered agent.

If you would like some help transitioning to STP Phase 2 please contact us to discuss the next steps.