Single Touch Payroll Reporting: Are businesses ready?

Large employers with 20 or more employees should now be reporting through STP, or have applied to the ATO for a later start date. Small employers with 19 or less employees will need to report through STP from 1 October 2019. The ATO may grant deferrals to any small employer who requests additional time to start STP reporting.

As Single Touch Payroll Reporting compliance dates draw nearer, BDO's Outsourced Payroll Service Partner and National Chairman, Helen Argiris, Met with Three of BDO's STPR leaders to discuss the top questions and issues from business owners preparing for the change.

“This is the biggest compliance requirement that the ATO has implemented since the introduction of GST,” says Helen.

Helen sat down with Kylie Patrick, Payroll Manager, BDO in Sydney; Shaye Thyer, National Cloud and Advisory Specialist, BDO in Adelaide; and Jason Daniels, Partner, BDO in Brisbane, and asked them a few questions:

The most common question I have had from clients about STPR is:

Kylie: The most common question received from our clients is “Does STPR affect me?”, followed closely by “Can you please ensure that we are compliant?”. The overarching response to both questions is a resounding “Yes”! By outsourcing your payroll to a trusted source, you are entering into a partnership where compliance is paramount and systems are in place to ensure this.

Shaye: So far, with STPR the most common question I have had from clients is: “Will my software be ready?” My response to that question is: If you’re using desktop software, the answer is most likely “no”. The nature of STPR is that it is real-time digital reporting through to the ATO via the internet. It follows then, that the system from which the data is coming from should be internet-enabled – meaning cloud-based. Those software providers at the front of the market (currently KeyPay, Xero, QBO, MYOB Essentials and MYOB AccountRight) have all committed their readiness. The ATO have a list of providers here.  

Jason: The most common question we get from our clients is “what do we need to do next?” We have recommended to all of our clients who will need to be ready for STPR, that they contact their payroll software vendor and make sure they are going to be ready for STPR. If they are going to be ready, confirm the timing of the release so that if you have to do any work at your end to upgrade the software, you have the resources ready and available. If they aren’t going to be ready, you’ll need to find out what exemptions they have applied for (and been granted from the ATO) and when they will be ready to go. We are seeing some instances where the payroll software provider is not upgrading their system to be STPR compliant and the business only has a short period of time to implement new systems.

The most common issue I have observed for businesses aiming for STPR compliance is:

Kylie: The most common issue around STPR was the surety for businesses around the ATO’s release dates and development requirements. The ATO have now introduced feedback and discussion panels, and regular releases of the development requirements for STPR are more readily available.

Shaye: With STPR the most common issue I have observed for businesses is unintentional compliance risk. Where we use software that involves much manual human data entry, we have significant risk of error – even with the most experienced of operators. Software has evolved to automate so many processes within the payroll function and can significantly reduce compliance breaches through human error. Timesheets don’t need to be rekeyed any more – they don’t even need entering in some cases. Leave can be managed by the employee using their mobile phone – integrated with the payroll system. Systems are integrated with changes to Awards and other industrial relations guides, to sound alarms when payments are made and conditions are endured outside of these boundaries. It doesn’t replace an experienced operator, but it does significantly reduce the compliance risk associated with unintentional human error in the payroll process.

Jason: The most common issue I have observed relates to the payments of allowances – especially motor vehicle allowances. In many cases, these allowances are not reimbursements according to the definition provided by the ATO. These are being paid without any PAYGW being deducted and no withholding variation being approved by the ATO, and often no consideration has been given as to whether this allowance should be subject to superannuation. Under STPR, the ATO will be able to check whether PAYGW and superannuation appears reasonable against the payments being made to staff. 

The biggest benefit of STPR for businesses is:

Kylie: Without a doubt streamlined reporting and payment requirements are the biggest benefit of STPR. Although this is not compulsory in the initial release of STPR, we will have the capacity to report and pay employees, superannuation and PAYGW all in one go - with a click of a button.

Shaye: I think the biggest benefit of STPR is a greater incentive for business to consider and adopt best-of-breed, future-fit software NOW. For many businesses, payroll is a tricky area that takes special expertise to ensure it’s 100% compliant, and so making changes in this area can often get moved to the ‘too hard basket’. STPR compliance and possible associated ATO penalties give businesses that little nudge they may need to save them from potentially business-critical risk and allow them to enjoy the peace-of-mind of best-practice operating environments, sooner. Selecting a cloud-based platform for payroll and accounting ensures that businesses are future-fit – that they’re not weighed down by unnecessary overheads driven by old systems and processes, that they can scale up economically as their needs grow – so that, ultimately, they can remain competitive as well as compliant in their chosen industry.

Jason: The biggest benefits of STPR to business will be: the ability to streamline the on-boarding of staff who have setup their choice of superfund through MyGov; online TFN declarations for staff; and relief from providing year-end and part-year payment summaries to staff. This may not sound like a lot, but for many businesses, this will add up to be a significant saving in time and effort over the course of a year.

Step 1: FIND OUT WHEN YOU NEED TO COMPLY

Mandatory reporting will start from:

• 1 July 2018 for businesses that employ 20 or more people, and
• 1 October 2019 for businesses that employ less than 20 people.

What do I need to do?

✔ Count your employees: Do a headcount as at 1 April 2018. The ATO has tips on who to count.

 

Step 2: CONNECT YOUR BUSINESS SYSTEMS

Employers will need to have SBR-enabled software to comply with their PAYG withholding obligations. (SBR = Standard Business Reporting)

What do I need to do?

✔ Check if yours complies here, or talk to your software provider, or contact your BDO adviser.

 

Step 3: CHECK YOUR PAYROLL PROCESSES

STPR means real-time reporting of payroll, PAYG withholding and superannuation payments to the government and associated government agencies.

What do I need to do?

✔ Check your HR practices and payroll procedures, including PAYG, superannuation, leave allowances and timeliness of payments, comply with the Fair Work Act 2009 and associated amendments – visit https://www.fairwork.gov.au/.

 

Step 4: GET YOUR EMPLOYEES ONLINE 

STPR encourages businesses to move away from paper-based payroll processes (such as timesheets, payslips, leave applications and expense claims), with the added benefit that employees will have access to their full payroll information online via their payroll vendor and year-to-date pay and superannuation contributions via a myGov account.

What do I need to do?

✔ Encourage your employees to set up or update their myGov account and link it to the ATO’s online services as recommended by the ATO.

 

Step 5: START REPORTING YOUR PAYROLL

What do I need to do?

If you have followed the steps above, you’re ready to go!

Your payroll timeframes don’t need to change, but you can consider changing your PAYG withholding and superannuation liabilities to be in line with your payroll. Talk to your BDO adviser about the advantages of doing this.

 

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Payroll is a process that, done well, should be invisible to the rest of the business. However, it remains one of the biggest but preventable areas of risk for many businesses.

With the first wave of the ATO’s mandatory Single Touch Payroll Reporting (STPR) well underway, now is the opportunity to reflect on your business’ payroll environment and consider moving closer towards best practice before it is too late.

What are the most common mistakes businesses make with their payroll?

The recurring payroll pitfalls we have observed are:

• Employees unintentionally paid below Award 
• Incorrect withholding of PAYG creating problems for employees at tax time
• Poorly managed (sometimes unlawful) salary sacrifice arrangements
• Incorrect allocation of payroll related transactions in the accounting system
• Businesses that struggle to meet the cashflow obligations of PAYG withholding tax and superannuation 
• Lack of transparency of accrued leave (especially long service leave)
• Employee entitlements not correctly recognised in the accounting system.

Your staff are at the heart of your business. A well-managed payroll function can preserve the organisational culture, and protect against the ill effects of payroll compliance risk - like lost productivity, cashflow pressures, ATO penalties and even industrial relations action against your business. 

How to avoid the pitfalls - our top tips for best practice payroll

Whether you have five employees, 50, or 500, these top tips can apply to businesses of all sizes.

1. Modernise your systems. Ensure your software is future-fit by adopting a cloud-based payroll system that integrates with your accounting system. This eliminates the need to manually enter data multiple times and reduces the risk of inconsistencies between systems.
    
2. User experience is key. These days, everything is mobile. So why shouldn’t payroll be the same? If a task is easy, it’s more likely to get done – fast. Adopting modern systems harnessing mobile, self-service interfaces for staff to manage leave requests, changes to personal details, accessing payslips, submitting timesheets and viewing rosters, makes it easy for staff to follow the processes necessary for accurate payroll.
    
3. Be ahead of STPR – lodge and pay the same time as payroll. Why wait until the end of the month or quarter to pay your PAYG withholding tax and superannuation liabilities? By preparing your cashflow budget where employee liabilities are paid in full every pay run, you not only have a better perspective of your business’ cash position, but you reduce the risk of penalties, interest, and upset employees when the payment deadlines are missed – not to mention, it’s two less things to diarise and think about!
    
4. Reconcile key accounts every pay run. Often, checking on the payroll-related accounts in the accounting software is a month-end or quarter end task. To best protect against payroll compliance risk and excessive time spent correcting the accounting records, reconcile key accounts like PAYG withholding payable, superannuation payable and leave liabilities every pay run. 
    
5. Register for alerts for legislation changes – payroll related legislation, especially Awards, can change frequently. Keeping up to date with these is critical to ensure staff are paid correctly and payroll compliance risk is minimised. Key legislation and regulations include (but are not limited to):
   • Fair Work Act 2009 and amendments
   • National Employment Standards
   • Industry and Occupation Awards
   • Superannuation Guarantee Rulings
   • Long service leave (state based)
   • Payroll tax (state based)
   • Workers compensation legislation (state based)
   • Australian Taxation Office updates.
      
6. Outsource and focus on what you need to do. Payroll compliance is tricky. By outsourcing to experts – those that specialise in payroll – you can focus on the needs of your business and enjoy the peace of mind that your payroll compliance risk is recognised and minimised with:
   • Award interpretation guidance
   • Access to knowledge that is always up to date with legislation and best practice
   • Access to a dedicated team in payroll, without the limitations of geographical location
   • Continuity of service all year round – no more managing leave and training new staff
   • No need to hire more staff as your business grows – the service scales up with your business needs.
   • Adopting online systems ensures that all payroll-related processes, including outsourcing, are seamless and not bound by geographic limitations.

Are your payroll processes ready for ATO Single Touch Payroll Reporting? Our BDO advisers can work with you to ensure you are STPR compliant, ahead of the ATO deadlines. Please complete the enquiry form to register for a complimentary consultation.

If you have requested your complimentary STPR consultation, or you are contemplating a request but are unsure about what this all means, the following outlines what you can expect from your complimentary STPR consultation.