As part of the set-up for STP Phase 2, employees must be labelled correctly as per a category of taxpayer (e.g. Regular, Actor, Senior or Pensioner & Horticulturist or Shearer) etc) and an additional layer known as an income type from the list below:
SAW (salary and wages)
CHP (closely held payees)
WHM (working holiday makers)
FEI (foreign employment income)
IAA (inbound assignees to Australia)
SWP (seasonal worker programs)
JPD (joint petroleum development area)
VOL (voluntary agreement)
LAB (labour hire)
OSP (other specified payments)
Most of the above income types are self-explanatory, with the exception of “closely held payees” (CHP). The CHP income type is tripping people up because they assume a payee who is a CHP should automatically be given the CHP income type. While this appears to be a logical choice, a CHP may have either an income type of SAW or CHP, depending on the entity’s situation. So how do you know when to choose one over the other? Below is my explanation of this issue.
Payroll finalisation will occur later than 14th July
Choosing either CHP or SAW Income Type
If the above reporting concessions are not being used by the entity and finalisation will occur by 14th July along with other arms-length employees, you may choose the income type CHP or SAW for your closely held payees.
I hope this has clarified the confusion around when to choose CHP as an income type for a payee who is a CHP.
If you are in the process of setting up your payroll for STP Phase 2, the ATO has a number of resources available. See also here for further ATO resources. It is worth checking them out to ensure that your setup is correct. Remember, STP Phase 2 will see a large proportion of payroll data shared with Services Australia on behalf of your employees. Services Australia will use this information as the basis for calculating future payments to your employees, should they be receiving them. For this reason, as well as ensuring employees’ wages are taxed properly, it is very important to ensure that your STP Phase 2 reporting is accurate and correct.
This excerpt is taken from the ATO website via this link.
Have you taken on new employees? Did you know they can complete a TFN declaration through ATO online services?
This is an easy way for them to provide both you and us with the information we need. If your new employee has a myGov account linked to the ATO, they can:
access ATO online services
go to the ‘Employment’ menu
select ‘New employment’ and complete the form.
This sends the TFN declaration details straight to us so you don’t have to. Your employee will need your ABN to complete the form. Once they’ve submitted the form, they need to print it and give you the summary of their tax details so you can input the data into your system.
You may be able to link your payroll software to the online commencement forms. But check first with your software provider if they offer this service.
You can also use the New employment form to collect a range of information. Despite its name, you can also use this form instead of the:
Withholding declaration form
Medicare levy variation declaration form
Superannuation standard choice form.
Your employees can use the New employment form to update their tax circumstances with you, for example, if:
their residency status has changed
they no longer have a government study and training loan
they are claiming the tax-free threshold from a different employer.
You can continue to use your current processes, including providing a paper TFN declaration where employees can’t create a myGov account or don’t have access to the internet.
STP Phase 2 is in full swing. It began on 1st January 2022 but various accounting software have not been ready until recently. This means many employers are only just now learning about, and setting up their payroll systems, to comply with STP 2 requirements.
Unfortunately, as it is still relatively new, some employers are making errors when reporting via STP Phase 2. Recently, the ATO published a list of those mistakes it is seeing. I am highlighting them here so you can be sure to avoid them when you start to report via STP Phase 2.
Common STP Phase 2 Mistakes List
Breaking the continuity of year-to-date amounts from STP 1 reporting. Unless you are using the replacing IDs methodfor transitioning to STP 2, you need to ensure that you maintain the STP 1 data that you have already reported. Your accounting solution will help you manage this and you should contact your provider if you require assistance with this issue.
Selecting “not reportable to the ATO” when setting up pay codes/categories. Most payments to employees need to be reported except for:
1. Travel allowance below the ATO’s reasonable amounts
2. Overtime meal allowance below the ATO’s reasonable amount
3. Reimbursements
4. Post-tax deductions except for those you need to separately identify.
Omitting a cessation date and reason. When an employee leaves your business, you need to report the date he finished and the reason why he left. Your accounting solution will include these fields to complete upon termination. The ATO will share this information with Services Australia which means you will no longer need to complete a separation certificate for that employee.
Some income types you report for employees will also include a special country code. If you are required to report a country code, you must report the code relevant to that employee. Some employers are incorrectly reporting a “NA” country code, thinking that it means “not applicable”. It actually means “Namibia”. So if you use NA in your reporting, you are telling the ATO that your employee is either working:
1. Overseas in Namibia or,
2. Is in Australia and they are from Namibia.
Allowances. All allowances must be reported separately using one of 8 specific allowance categories. You must not simply report an allowance to the “Other Allowance” category (allowance type OD). You must report allowances using their appropriate category because each category is treated differently for tax, super and social security purposes. Only report an amount as Allowance type OD if it’s an allowance that does not belong in one of the 8 specific allowance categories.
Treating reportable super contributions (RESC) and salary sacrifice as the same thing. These are 2 different things and need to be reported correctly. Check out this ATO video which explains how to report these payments via STP 2.
Here is the link to the ATO webpage which provides more in-depth information about the STP 2 reporting mistakes listed above, including several helpful videos.
As well as the super guarantee increase to 10.5% on 1 July 2022, employers now need to factor in a wage increase. Read more below.
National Minimum Wage Increase
The Fair Work Commission (FWC) has ordered a 5.2% wage increase to the national minimum wage (NMW). From 1 July 2022, the NMW will increase by 5.2%, which amounts to $40 a week. The new National Minimum Wage will be $812.60 per week or $21.38 per hour.
Award Minimum Wage Increase
The FWC has announced that minimum award wages will increase by 4.6%, which is subject to a minimum increase for award classifications of $40 per week and based on a 38-hour week for a full-time employee. This means minimum award wages above $869.60 per week, will get a 4.6% increase and below $869.60 per week, will get a $40 increase.
When to Apply the Increase
The new National Minimum Wage will apply from the first full pay period on or after 1 July 2022. This means if you have a weekly pay period that starts on Mondays, the new rates will apply from Monday 4 July 2022.
If you are covered by an award, award increases happen in 2 stages. Most awards will increase from the first full pay period on or after 1 July 2022 but, for some awards as listed below, the increase will happen from 1 October 2022.
Aircraft Cabin Crew Award 2020
Airline Operations – Ground Staff Award 2020
Air Pilots Award 2020
Airport Employees Award 2020
Airservices Australia Enterprise Award 2016
Alpine Resorts Award 2020
Hospitality Industry (General) Award 2020
Marine Tourism and Charter Vessels Award 2020
Registered and Licensed Clubs Award 2020
Restaurant Industry Award 2020
These awards relate to industries that are considered to be still adversely impacted by the COVID-19 pandemic.
To read more information about the wage increase go to this Fair Work web page.
In what may be just a political stunt given it’s an election year, the Victorian Government has announced that from March 2022, some casual workers will be able to claim personal leave pay. This is very unusual because casual workers are not entitled to sick leave, rather they receive a 25% loading on top of their hourly rate in lieu of holiday and sick pay. The Government is doing this to help stop the spread of COVID-19 and other diseases as it is known that casual staff will attend work when they are ill to avoid loss of wages and shifts. As per their website, their main reason for introducing this new payment is to allow casual workers to take time off if they are ill or if they need to care of family members because in their words, “no worker should have to choose between a day’s pay and their health, or the health of a loved one”. This blog will look at the details behind this scheme and ask the question, “Is this payment fair?”
What is the Victorian Sick Pay Guarantee?
The Victorian Sick Pay Guarantee (VSPG) is a government-paid initiative that allows for some casual and contract workers as listed below, to receive 38 hours of personal leave pay at the national minimum wage (currently $20.33/hour). The program will run as a trial for 2 years after which time, it may become an industry levy on employers. The scheme is active now and those wanting to apply for the leave payment can do so here.
JOB
TYPE OF WORK
Hospitality workers
Providing services to patrons of hotels, bars, cafes, restaurants, and similar venues.
Food preparation assistants
Preparing food in fast food establishments, assisting food trades workers and service staff to prepare and serve food, cleaning food preparation and service areas.
Food trades workers
Baking bread and pastry goods; preparing meat for sale; planning, organising, preparing and cooking food for dining and catering establishments.
Sales support workers
Providing assistance to retailers, wholesalers and sales staff by operating cash registers, modelling, demonstrating, selecting, buying, promoting and displaying goods.
Sales assistants
Selling goods and services directly to the public on behalf of retail and wholesale establishments.
Other labourers who work in supermarket supply chains
Including workers who fill shelves and display areas in stores and supermarkets; load and unload trucks and containers, and handle goods and freight.
Aged and disability carers
Providing general household assistance, emotional support, care and companionship for aged and disabled persons in their own homes.
Cleaners and laundry workers
Cleaning vehicles, commercial, industrial and domestic premises, construction sites and industrial machines, and clothing and other items in laundries and dry-cleaning establishments.
Security officers and guards
Providing security and investigative services to organisations and individuals, excluding armoured car escorts and private investigators.
From: https://www.vic.gov.au/sick-pay-guarantee
Is this fair for employers?
It’s important to remember that for the first 2 years, this scheme will be paid by the Government, not employers. Should it continue, however, it is believed that employers will need to pay an industry levy that will cover the VSPG for casual staff. Therefore, employment costs will increase, placing further financial pressure on employers. Employers are already paying a 25% loading on top of basic wages for casual staff which is supposed to cover their sick and holiday pay. Some would say that the addition of the VSPG is double-dipping, given that a casual worker will receive both the loading and the sick payment. If this scheme continues, some employers may be pushed to employ part-time or full-time staff only in an attempt to avoid increased costs brought on by using casual employees.
Is this fair for employees?
Certainly, it can be argued that casual employees are an “at-risk” demographic. They are subject to reduced hours, unstable employment and increased difficulty in maintaining a robust credit record. They do not have the same job security as their part or full-time counterparts. As they generally do not work full-time hours, their income is greatly reduced and even though they are in receipt of the 25% loading, they do not have the ability to save this loading for sick days, as they need every cent just to live! Many are working paycheck to paycheck in order to pay rent and put food on the table. This being the case, it is understandable that some would choose to go to work sick, rather than lose wages, shifts and/or their job. With this in mind, the VSPG is fair for these employees. They can maintain their income and avoid spreading viruses like COVID-19. This is good for everyone.
Here’s what I think
I do like the idea of the VSPG. I am sure it will really help many casual workers (double-dipping or not). However, I think it’s just a temporary solution because once the VSPG payment is used up (the 38 hours), it is likely that workers will go back to attending work when they are ill. I’ve had a think about it and here are some alternative solutions I’ve come up with. Casual workers could:
Opt-in for loading or leave accruals, but not both.
Receive a smaller loading and accrue leave as well.
Apply for a top-up payment from the Government, when wages fall below a certain point for a particular period.
These are just some ideas jumping around in my head, but as I write this, I am left wondering if the double-dipping issue is the real problem here. Perhaps the real issue is not what is paid to casual staff, but rather, how much.
I believe, underlying the need to top up casuals’ pay with the VSPG and/or loadings, is a wage level problem. If these employees were paid adequately in the first place, then perhaps there would be no need for either the loading or the VSPG.
For many casual employees, wages are just too low, loading or no loading. Many who are students, carers or parents cannot work full-time hours and, as such, are subject to very low incomes. In my opinion, we need to look at wage growth and inflation before offering bandaid solutions such as the VSPG. Wages need to be kept in line with inflation. Simple as that. The Government that makes this happen, will get my vote this election year. Sadly, I think I’ll be left wanting…
As you probably know by now, STP Phase 2 has begun. It began on 1st January 2022, with a deferred hard start date by the ATO of 1st March 2022.
Your payroll software provider may have a deferral in place with the ATO for a later start date (see list below) which will cover you as their customer. However, some software providers are ready now and do not have a deferral in place. Examples of these are Quickbooks Online (KeyPay) and Saasu. If you are using one of this software or something else, then your business should be ready for STP 2 and be reporting data to the ATO as per their requirements. (Note, to check if your software is STP 2 enabled, you can go to this ATO page and search for “Payroll Event 2020”. This will produce a list of software that is STP 2 – ready.)
If you know you are not ready and need more time, you can try to apply to the ATO for a deferral. You can do this via Online Services for Business. Simply log in and follow these steps:
1. Select Employees 2. Select STP deferrals and exemptions 3. Select Delayed transition to STP Phase 2 expansion 4. Complete the request 5. Click Submit.
You will also need to advise: 1. Which payroll software is being used; 2. The reason a delay is being sought, and 3. The expected date the business will be able to start reporting under STP 2.
Software Providers with a Current STP 2 Deferral The following SPs have a current deferral in place with the ATO which also covers you, as their customer:
As part of the Government’s Treasury Laws Amendment Bill 2021 which passed on 12th February 2022, it has been decided that the $450 superannuation guarantee threshold will be removed. This will begin on July 1, 2022.
The scrapping of the threshold will make about 300,000 more workers eligible for super contributions, including many low-income employees in part-time and casual positions. This will ensure all workers can build their retirement savings, not just those in higher-paid, full-time positions.
Currently, employees must gross a minimum of $450 per month with one employer in order to be paid super on top of those wages (note, this can be $350 per month for those working in the hospitality industry e.g. award MA000009 Hospitality Industry). Those who work casually or part-time may find that they never quite reach that threshold even if they hold several jobs at once. For example, an employee who has 3 casual jobs, earning $300 per job per month, will not receive super on any of those wages due to the $450 threshold. This hardly seems fair and is the main driver for the removal of the threshold.
So, from July 1, 2022, if you employ staff, you will need to pay super contributions on all their earnings, no matter how little each month. For example, if your employee grosses $100 for the month, then super of $10 (currently paid at 10%) will accrue and be paid to the employee’s super fund.
While the move to remove the super threshold is pleasing in my opinion, it is worth noting that employers’ payroll budgets will increase as a result. The cost to employ staff is currently very high and this change will only serve to make it higher! Add in the next super guarantee increase to 10.5%, also from 1 July 2022, and I think we shall see some employers squirming!
While your payroll software will more than likely be upgraded to take up the removal of the super threshold, it is worth noting the start date to ensure you can check your payroll setup is correct when the time comes.
As per Fair Work, some employees will be entitled to unpaid pandemic leave from 31 December 2021 to 30 June 2022. This affects 74 awards – see this list to check if your workplace is affected.
But what is unpaid pandemic leave and how should it be used?
What is unpaid pandemic leave?
If an employee is prevented from working because he has to self-isolate as directed by:
government or medical authorities or his doctor, or by
enforceable government directions placing restrictions on non-essential businesses,
he will be eligible for up to 2 weeks’ unpaid pandemic leave.
What do I need to know about unpaid pandemic leave?
Full-time, part-time and casual staff are eligible.
Paid leave does not have to be used before pandemic leave is taken.
All staff can take the 2 whole 2 weeks leave - it is not pro-rated for staff who do not work full-time.
Unpaid pandemic leave does not affect other types of leave, paid or unpaid.
My employee wants to take unpaid pandemic leave. What should I do?
Your employee needs to advise you when they will take the leave (even if it’s already started) and the reason they are taking it. He should do this via email so that you both have written evidence as to when the leave was taken. The employee should indicate how long he will be absent from work. You can ask your employee to provide evidence that shows why they took the leave, such as a medical certificate. Note, if your employee is actually ill from Covid-19, then he/she may benefit from taking paid personal leave instead. In this case, you could ask for other evidence such as a positive PCR or a Rapid Antigen Test reading.
This is the final blog in a four-part blog series about STP Phase 2. In part one of this blog series, we looked at the benefits of phase 2, then, in part two, we outlined which software providers are ready for STP 2 now. Part three in the series delved deeper into the technical side of STP Phase 2. This final blog will focus on the sorts of things employers or their bookkeepers can do now, in order to plan ahead for a smooth transition to STP Phase 2.
The best thing you can do is to start to review your current payroll setup. Check employees’ details both personal and payroll-related. I have created a spreadsheet you can use to review your current employees/payees which you can download and use as needed (see below). This spreadsheet will collate most of the information you will need in order to transition to STP 2. Start the process by completing the spreadsheet and then, when you are ready to transition, you will have most of the required information at your fingertips.
Next, sit down with your employees/payees and explain what will happen once STP 2 begins. Tell them about how their information will be shared with the ATO and Services Australia. Explain that their payslips and income statements will look different and why. You may need to ask payees for more personal information during the setup of STP 2 – try to get ahead of the game and find out what sorts of data you don’t have and work with your payees to obtain it.
Keep an eye on your payroll provider’s pathway to STP 2. Your provider will advise you when you can transition and how it is to be done within the software itself. This may not happen for some months, but you can still prepare as per my above tips!
Lastly, think about when you would like to transition to STP 2. Yes, there are time constraints as per the ATO but they do say you can move over at any time during the year (provided you are covered by a deferral). However, you may like to put a plan in place and decide on a cutover date. That way, you can work towards the move to STP 2 in a timely manner and in a fashion that works for you and your business.
Lastly, to help you with your STP 2 plan and research, the ATO has created a set of guidelines for employers (see below). Download it and pop it away for use when you are ready to transition (or start your research now). Remember, don’t panic! There’s plenty of time and there will be a lot of help available to you when the time comes to tackle STP Phase 2!
How payroll is changing and what it will look like - getting technical!
What is STP Phase 2?
Basically, STP Phase 2 is the same as STP Phase 1 except that more payroll data now needs to be reported. STP 2 requires drilling down into the details about your payees, their payments, PAYG withheld, and superannuation. These extra details will be shared with the ATO and Services Australia, providing them with greater visibility about your payees and you, as an employer.
While the overall process of transferring your payroll data to the ATO via STP is not changing, there are some specific attributes of the process that will change. These are listed below:
Reporting of income types and country codes - see graphic below.
Disaggregation of gross income - you will be required to report more detail about income including gross, allowances, paid leave, overtime, bonuses and commissions, directors' fees and salary sacrifice.
New fields to replace Tax File Number Declaration services - while you will still need to retain a copy of the employee's TFND, you will no longer be required to send a copy to the ATO as data relating to the TFND will be transmitted at each and every pay event.
Lump Sum E by financial year - If you need to make a Lump Sum E payment (back payments more than 12 months old), you won't need to provide a Lump Sum E letter to your employee as it will be included in the STP report.
Adding new cessation type reason - because the date and reason for employment cessation will be in the STP report, you will no longer need to complete and provide separation certificates to employees.
New Child Support Agency deduction and garnishee – Child Support deductions and/or garnishees will be reported via STP reducing the need for you to send separate remittance advice to the Child Support Registrar.
Transferring payee year-to-date amounts – if you change software type or an employee's payroll ID number, this will be reported via the STP report. This will help avoid duplicate income statements appearing in employees' myGov accounts.
Separately reporting salary sacrifice - you will be required to report the pre-sacrificed income as well as the amount of salary sacrifice.
Our main message to you is “do not panic”! Your software provider will assist you with the move to STP 2 when the time comes. In the meantime, we suggest that you do some research to assist you in better understanding how your payroll will be affected by STP Phase 2. To help you with this, we have created the below table. There are links to relevant ATO web pages which will provide specific information about how STP 2 relates to your employees, their payments, and tax withheld from those payments.
