Single Touch Payroll is nearly here. Are you prepared?

Small businesses need to be prepared for big changes to the way they report employee tax and super obligations to the Australian Taxation Office (ATO).

Single Touch Payroll (STP) was first launched for employers with 20 or more employees, but legislation that passed in February this year means it will also apply to smaller employers from 1 July 2019.

The upshot is that businesses employing less than 20 people will need to make the switch now.

This is no mean feat. The vast majority (over nine in 10) of Australian businesses are small businesses. They employ over 40 per cent of Australia’s workforce and pay around 12 per cent of total company tax revenue, according to official figures.

Greater transparency

Small businesses need to ensure their payroll system is connected to the ATO. They also need to send their employees’ tax and super information through to the tax man, each and every time they run their payroll and pay employees.

STP will provide greater transparency and connect businesses to the ATO through their existing software, explains ATO Assistant Commissioner John Shepherd.

“Single Touch Payroll is an important change that will deliver benefits for both employers and employees by streamlining payroll processes and providing greater transparency around super entitlements,” Shepherd says.

The ATO has promised to be flexible, reasonable and pragmatic about extending STP, announcing that it understands that there will be circumstances where more time is needed to implement STP or lodge reports. But being prepared early is paramount.

What does it mean for my small business?

Mark Chapman, Director of Tax Communications with H&R Block, warns that “regardless of how you pay your employees or how many people you employ, STP rules will impact your small business, even if you don’t currently use a payroll software package or if you still prepare payrolls manually, as many businesses with just a handful of employees do.”

But there are plenty of positives for business owners. This switch means you will no longer need to provide payment summaries or spend hours reporting at the end of the financial year. It improves payroll processes, which will save time and improve accuracy, according to Sydney tax accountant Jenny Thai from JTR & Associates.

So, what do you need to do?

The first step to being compliant is to find a suitable software option.

“Some businesses may already be on a system such as Xero, MYOB or Quickbooks. If not, then standalone payroll options are also available,” Thai explains.

Then you need to load all employee details into the software system. “If you’re already using an STP-compliant solution, just do a basic check that your payroll systems are correct and compliant,” she says.

Next, ensure the connections are working between your software and the ATO. Your accountant or bookkeeper may be able to help, or Thai suggests calling the ATO directly on the business number (Ph: 13 72 26) for assistance with this.

Employers not currently not using STP-compliant software need to get up to speed now, so they can iron out any problems before the 1 July 2019 deadline.

“Start reporting your payroll right away, because it can be time consuming. Learning the new payroll software is the most difficult part,” Thai says.

Many small businesses already compliant

MYOB has processed over 1.3 million transactions since being first to market with an STP solution in April. Many of these have been from smaller businesses that adopted STP ahead of the compulsory deadline.

Sydney small business owner Kerryn Martorana is one of them. The founder of psychology and coaching business Lifeology implemented MYOB a month ago in preparation for the switch to STP. She had been previously tracking everything in a spreadsheet, which she admits was less than ideal.

Martorana has one employee and will hire a second person in a few weeks. “I’ve been having a play around with the software ahead of the STP legislation changes, and paying myself to get a feel for how it works,” she says.

The software has been really easy for her to use. “I’ve been in business for five years, and my credibility is really important to me. When you’ve got staff, you’ve got to make sure that annual leave and sick leave is right, or credibility can be impacted.”

ATO makes it easier

To help employers, the ATO is preparing a number of measures to make the transition easier. This includes listing a range of options available for employers who don’t use payroll software, such as no-cost and low-cost STP solutions. These have been developed for micro-employers (those with one to four employees) who need to report through STP but don’t have the required software in place. You can view the list here.

The ATO has also published a STP checklist for SMEs here.

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