What’s emerging? Single Touch Payroll - phase 2 reporting. Will it reshape the future of audits?
It is important for employers to understand the data being submitted in the context of employment taxes obligations. - 7 September 2021
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As part of the 2019-20 Budget, the Federal Government announced an expansion of the reporting of “employment income … through Single Touch Payroll”. The primary aim of this measure was to enable timely data-flow between Government agencies, particularly with respect to social security payments to ensure that recipients are not inadvertently over or underpaid. This expansion has been referred to as the ‘Phase 2’ roll out of Single Touch Payroll, and the ATO have now released employer reporting guidelines on the reporting changes.
Amongst other changes (such as tax categorisation of each employee), the key update will be that, instead of reporting a single gross income amount, employers will now be required to separately report the following:
- gross
- paid leave (including subcategories for other paid leave, paid parental leave, workers’ compensation leave, ancillary and defence leave, cash out of leave, unused leave on termination)
- Allowances (including subcategories for cents/km, award transport, laundry, overtime meal, travel, tool, qualification/certification, task, other)
- overtime
- bonuses and commissions
- directors’ fees
- Return to work payments
- salary sacrifice.
Additionally, the guidelines also, under each of the above categories, details set criteria as to what type of payments are included. For instance, leave loading that is clearly linked to a notional loss of opportunity to work overtime must be reported as overtime, rather than paid leave. Keep in touch days must be reported as gross, rather than paid leave. An identified overtime component of an annualised salary must be reported as overtime, not gross.
While the ‘Phase 2’ rollout has the primary aim of supporting the administration of the social security system, it is paramount that employers understand (and appropriately map) the data being submitted, particularly in the context of employment taxes obligations.
As with the migration to the justified trust/streamline assurance regime, the ATO is moving to targeted and smarter reviews and audits and we expect, in due course, that the ATO will be able to utilise the granular STP data to perform targeted employee entitlements reviews. As an example, through the disaggregated reporting, the regulator is better enabled to identify pay elements that constitute and do not constitute Ordinary Time Earnings (relevantly, some of the reporting clearly has this in mind - for example, separate reporting for overtime versus non-overtime leave loading).
Will data-driven, targeted Superannuation Guarantee audits be a thing of the future? Or, with information sharing expected between the ATO and State Revenue Authorities, could targeted (rather than periodic) Payroll Tax audits be the way forward? Perhaps it will be a combination of both!
Regardless, it is more important than ever to ensure appropriate governance around your pay code system configuration, including ongoing diagnostic checks (such as quarterly exception-testing tools aimed at highlighting inadvertent Superannuation Guarantee non-compliance), to identify issues and self correct on a timely basis to mitigate interest, penalties and to mitigate, or be best prepared for, any regulator scrutiny.
