Single touch payroll is a change to the way businesses report their employees’ tax and superannuation information to the ATO. From July 1, it will be mandatory for all businesses to use an electronic payroll program that enables their business to electronically report payroll information.
Legislation to extend single touch payroll (STP) reporting to businesses with less than 19 employees passed the Senate in December 2018. The changes were expected to get through, but their passage through the Senate brings the reality of STP reporting for Australia’s smallest businesses to the fore. Businesses will technically be required to be complying with STP reporting by July 1, 2019, which gives hundreds of thousands of businesses just over seven months to get on board.
Here’s everything you need to know about what’s going on:
What is single touch payroll?
Single touch payroll is also called real-time payroll reporting — because it means every time a business pays their workers, all salary information is sent to the ATO. This includes wages, deductions and super information, eliminating the need for Pay-As-You-Go withholding activity statements throughout the year.
This real-time reporting is generally done through accounting software platforms such as MYOB, Xero or Quickbooks. In fact, this is so prevalent the ATO’s own explainer on the regime repeatedly advises businesses to talk to their third-party software providers.
Don’t use digital payroll? Keep reading, you aren’t the only one.
Why is this happening?
The government and regulators, including the ATO, like STP for a few reasons. Firstly, it’s a much more efficient way to run the taxation system, which means it costs taxpayers less. It also makes black economy activity harder — at least in theory — because the ATO has a better idea of who is being paid what, and when.
For businesses, STP reporting can make things easier and more efficient, particularly if the process becomes automated to a degree.
What’s the scale of this change?
The ATO has said about 730,000 businesses will need to start doing STP reporting under the changes. To put that in perspective, there are about 45,000 businesses currently doing STP reporting after it became a requirement for businesses with more than 19 workers in July. About 15,000 businesses with less than 19 workers are already using STP.
This means the ATO will need to increase the size of the STP regime tenfold, an undertaking described by BDO partner Brian Greenacre as a big job. “It’s the biggest compliance undertaking since the GST”.
What are the concerns?
There’s no shortage of concerns about the extension of STP reporting to smaller employers. Worries range from businesses not being aware of the changes to micro-employers (four or fewer workers) not having digital payroll software or access to reliable internet.
For those that can get digital payroll software, it will come at a cost. Stacey Price of Healthy Business Finance is an accountant and a micro-business owner. “The thing is, a lot of really small businesses have ignored it, hoping it wouldn’t be relevant. We still have a lot of people that don’t use accounting software for payroll”.
Price is concerned businesses, many of which are mum-and-dad operations where the founders pay themselves, don’t believe they have much to gain by adopting STP, but think have plenty to lose. “A lot of small businesses are struggling to come to grips why we need to change,” she says.
For Warwick Levy, a micro-business owner who does his payroll manually, the prospect of STP reporting is admittedly “difficult”. “It’s going to be a huge rush for a lot of small businesses coming up to July next year which could cause some chaos.”
How will it work?
For businesses with digital payroll software, enabling STP reporting can be as easy as a few clicks. For those without it, the ATO has said it won’t be forcing anyone to get it, although they have strongly implied businesses should. Businesses without digital software will need to comply with the new regime through business activity statement filings, submitted to the ATO.
To make this easier, the ATO has said micro-businesses will only have to submit STP reports quarterly for the first few years. That sets a different standard for micro-businesses, which Price, who has spent the last year telling all her clients about STP, is frustrated by. “They need to start it how they plan to finish it,” she says.
Price also has concerns about actually conducting manual STP reporting, saying it will be time-consuming and could create security risks related to personal details in the mail.
Greenacre says businesses will be keeping track of the information required for STP already, which should help things along. “The ATO is really focused on micro-businesses and trying to make this as smooth as possible,” he says.
What does the ATO have to say?
The ATO is applying a soft-touch approach to compliance for smaller businesses. The initial STP rollout was less-than-smooth for many larger businesses, and learnings have been taken on board since then.
In a webinar late 2018, ATO commissioner Chris Jordan said they weren’t interested in cracking the whip to ensure short-term compliance and are instead taking a long-term view. “We’re not going to force people to go and put into their business a whole accounting system [or] payroll software,” Jordan said. “But its part of that digital world also that people do have to realise that everyone is going digital”.
There will be compromises available for stragglers as well. “We’re very open to granting deferrals, we’re very open to granting class exemptions for example for those people that don’t yet have an effective internet connection, we can just provide an exemption until that happens,” Jordan said.
How much will this cost?
Looking at a digital solution? The ATO has embarked on an expression of interest campaign for third-party providers such as MYOB and Xero to pitch low-cost and quick STP reporting solutions for micro-businesses. It wants a solution that costs about $10 per month and takes about five minutes to execute.
Over 20 providers have participated so far, with varying levels of commitment. So far, larger third-party providers Xero, MYOB and Quickbooks have not confirmed whether they’ll offer a $10 solution for micro-businesses. All three are considering a price structure review to accommodate the changes though.
If you are not sure if your business is single touch payroll ready or you wish YBM to assist your business ready for single touch payroll, please contact our office today.