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Single touch payroll: what is it, and how does it work?

If you’re a business owner, you’ve probably already heard about the new single touch payroll system. This new legislation has changed the way businesses report payroll information to the ATO. Here’s what you need to know.

What is single touch payroll?

Businesses used to report employee wages, salaries, and superannuation information to the Australian Tax Office (ATO) once a year. With the new single touch payroll requirement, this payroll activity must be reported after every payday.

Payroll reports must also be submitted digitally, using an approved format. The new rules apply to businesses of all sizes, including Australian subsidiaries of global corporations. The following information should be included in these reports:

  • Employee wages

  • Employee salaries

  • Pay as you go withholding

  • Superannuation information

This payroll data can be uploaded to the ATO either right before employees are paid or simultaneously with payments. 

Understanding single touch payroll for small business

In the past, small businesses were required to submit an annual report of payroll records. The report was required to include a payment summary report for the entire company, along with summaries for each employee. This annual report is no longer required, replaced with a report-as-you-pay system. Employee payment summaries are no longer required under single touch payroll for small business rules. Instead, each payday report serves as the sole record. Employees have access to their own payroll information, accessed online through the myGov website.

What are the benefits of single touch payroll?

By streamlining payroll reporting and moving it to a digital format, the ATO hopes to make the process run more smoothly for employers and employees alike. Here are some benefits of the new single touch payroll system:

  • PAYG payroll reporting is automatically combined with the pay run. This frees up time during the end of the financial year.

  • Individual payment summaries no longer need to be distributed to employees.

  • New employees can be quickly onboarded with online payroll forms.

  • Employees have real-time access to their tax contributions and year-to-date payments through the MyGov website.

  • Payroll information is already filled in on annual tax returns using STP report data, making them easier to file.

Single touch payroll exemptions

There are some single touch payroll exemptions. These may apply to a single financial year or to certain types of employees, employers, or payment types.

  • Exemptions for payments: Some payments are exempt from STP reporting. This includes long service leave and redundancy schemes. When an employee receives this type of payment, it doesn’t need to be reported through STP until 1 July 2021.

  • Exemptions for employers: Employers with withholding payer numbers are exempt from STP reporting until 1 July 2021.

  • Exemptions for payees: Small businesses with under 20 employees are exempt until 1 July 2021, though it might make sense to start single touch payroll reporting before this date.

It’s best to check in with the ATO for the latest exemptions. However, it’s also important to note that even if you are exempt from STP reporting, it’s still required to comply with all existing pay as you go (PAYG) withholding obligations. This includes the original requirement of issuing annual payment summaries to both the ATO and employees.

How to report STP

No paper forms are needed for the new STP system. Instead, all payroll information is submitted online using the SBR (Standard Business Reporting) format. Small businesses with only 1-4 employees are eligible for no-cost or low-cost software solutions.

Before purchasing payroll software for your business, be sure it can produce ATO-compliant reports. If you use desktop software for online payment processing or spreadsheets, you’ll need a separate service to upload payroll reports and convert them into the ATO format.

Finally, with STP regulations, it’s more important than ever that employee details are correct. Double-check figures like date of birth, superannuation details, tax file numbers, and name spellings. This information will all be automatically sent to the ATO every payday, so it must be current.

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