What is Single Touch Payroll? - Its Benefits, Common Mistakes, and Reporting Process

What is Single Touch Payroll? Well, it is a new technology that is transforming the way that employers report payroll data to the Australian Taxation Office (ATO). Businesses used to only report payroll at the end of the year, but with STP, they report payroll every time they make a pay run, including employee wages, tax, and superannuation data. This live reporting feature increases payroll accuracy, makes compliance easier, and saves admin time. 

In this guide, we will take you through Single Touch Payroll, who will need to use it, the benefits, and the key reporting requirements required by employers. 

What is Single Touch Payroll?

Single Touch Payroll definition is a new online payroll reporting system for the Australian Taxation Office (ATO). It allows employers to submit employee payroll data electronically anytime an employee is paid. 

Employers do not have to create annual payroll reports/payment summaries and instead submit payroll data to the ATO via STP-compliant payroll software on a pay run basis. 

Typically, the information reported will contain employee wages, PAYG withholding amounts, superannuation obligations, and other payroll information. 

STP does not alter the frequency of employee payments, nor does it affect the way payroll is handled. Rather, it is a streamlined report on payroll data to the government, which can drastically ease the administrative burden throughout the year. 

Now that you know what is Single Touch Payroll, let’s go ahead and learn when it was actually introduced. 

Why was Single Touch Payroll Introduced?

Employers used to report payroll at the end of the financial year. It meant extra paperwork and the chance of reporting errors. 

Gone are the days of cumbersome payroll reporting and the inaccuracy of tax and super information, the Australian Government’s solution is Single Touch Payroll (STP). 

Some of the main objectives of STP include: 

• Reduce paperwork for employers. 
• Improving payroll accuracy. 
• Simplifying tax reporting. 
• Timely reporting to the ATO. 
• Reducing end-of-year administration. 

Employers who submit payroll data throughout the year will be able to detect and fix problems earlier rather than year’s end. 

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Who Needs Single Touch Payroll?

Most Australian employers with one or more employees will need to implement Single Touch Payroll. 

These range from small to large enterprises, such as: 

• Sole traders with employees
• Partnerships
• Companies and small businesses
• Trusts 
• Not-for-profit organizations 
• Government employers 

Unless there’s a PAYG tax reporting exemption or PAYG tax reporting concession for you, you’ll have to report payroll information in STP-enabled software if your business pays an employee and withholds PAYG tax. 

Some of the people who may be covered by STP include: 

• Full-time employees
• Part-time employees 
• Casual employees 
• Staff on paid leave 

It is important that businesses are aware of their reporting requirements and that the payroll software they use meets the existing STP requirements.

How Does Single Touch Payroll Work?

Single Touch Payroll definition is intended to integrate with your current payroll system. Once your payroll software is configured, reporting will occur as part of your regular pay run. 

Here’s the procedure that follows: 

Step 1: Process the Employee Payroll 

Use your payroll software to work out employee wages, overtime, allowances, deductions, and superannuation.

Step 2: Review the Payroll Information 

Review all employee information before submission of payroll to ensure payroll, tax, and super amounts are correct.

Step 3: Pay Employees 

Employees are paid on the regular pay schedule with proper bank statements.

Step 4: Submit the Report 

Once your payroll software has been processed, it will automatically transmit the needed payroll data via the STP to the ATO.

Step 5: Repeat for Every Pay Cycle 

Your reporting process will be the same each time you get paid: weekly, fortnightly, or monthly.

Since reporting is part of the payroll process, employers will typically spend less time preparing separate payroll reports throughout the year. 

What Information Comes in STP?

All STP reports will contain payroll data for all employees paid in the pay run. Reporting information will vary depending on your payroll situation and may include: 

• Gross wage and salary amount. 
• PAYG withholding amounts
• Superannuation liabilities 
• Bonuses and commissions 
• Overtime payments 
• Allowances 
• Paid leave
• Salary sacrifice arrangements 
• Employment termination payments 

Reporting allows for up-to-date payroll records for employees and assists in tax reporting at year’s end.

Understanding STP Phase 2 

Single Touch Payroll Phase 2 increased the data that employers report via STP. 

The goal of phase 2 is to enhance the quality of payroll information reported to government agencies and to minimize the reporting burden for the employer. 

These information should be reported: 

• Employment type 
• Income type 
• Bonus Tax treatment codes 
• Salary sacrifice categories 
• Child support deductions 
• Paid leave categories 
• Lump sum payments

Most of the contemporary payroll software has support for STP Phase-2; however, employers should check if their software is up-to-date with the current reporting needs. 

Benefits of Single Touch Payroll 

STP isn’t necessarily a compliance measurement, but it can provide some practical benefits for employers and employees. 

• Reduced Administrative Work: Since payroll reports are submitted with every pay run, employers spend less time in preparation to prepare separate reports at the end of the financial year. 
• Improved Payroll Accuracy: More frequent reporting means they’re going to be able to catch the payroll mistakes sooner and fix them before the year-end.
• Better Compliance: While keeping payroll records up to date, STP assists employers in meeting their ATO reporting requirements. 
• Improves Transparency for Employees: Year-to-date income information can be accessed by employees via their online government services account after it has been reported and finalized by their employer. 
• Streamline Year-End Reporting: Employers don’t produce payment summaries as usual; they fill in a finalization declaration at the end of the payroll reporting period for the financial year. 

How Often Do You Need to Report?

An STP report is normally filed by the employer on the same day that employees are paid.

Reporting is done on the same frequency as your payroll schedule. 

For example: 

• Reporting should be performed weekly for the weekly payroll.
• Bi-weekly payroll requires bi-weekly reporting. 
• Monthly payroll requires monthly reporting. 

Once a report has been submitted, there is a possibility that some corrections may be necessary; employers can likely do this by updating the information through their payroll software. 

Common Mistakes with Single Touch Payroll 

Single Touch Payroll meaning that employers can help, but there are common reporting errors that should be avoided, even with the use of automated payroll software. 

• Check Employee Information: Reporting problems can arise when the employment details and/or employee names are incorrect or when employees do not have a Tax File Number (TFN).
• Using Outdated Payroll Software: Payroll software should continue to be updated to meet the latest STP needs, such as Phase 2 reporting.
• Incorrect Payroll Categories: Correctly classify allowances, leave payments, bonuses, and salary sacrifice plans to ensure proper reporting. 
• Forgetting Year-End Finalization: The annual finalization declaration is not a way of submitting payroll throughout the year. 

Final Words 

Single Touch Payroll  meaning is a new way to report payroll that simplifies how Australian employers report payroll data to the ATO every time they make a payroll report. Although STP is a business requirement for most companies, it also helps minimize administrative tasks, improve accuracy in reporting, and ease year-end obligations. 

Employers can achieve payroll compliance and handle their payroll operations with confidence and efficiency by leveraging STP compliance payroll software, ensuring accurate employee records, and reporting timely. 

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FAQs 

Sources: 

What STP is – By Australian Government