From 1 July 2018, substantial employers will be required to comply with Single Touch Payroll Reporting (STPR) requirements. These changes essentially are aimed at reducing administration, and providing the Commissioner with real time information on an employer’s payroll through automated reporting.
The Commissioner will have direct access to information never previously reported by employers such as Ordinary Time Earnings and employer superannuation contributions. Further, the information will be provided almost immediately as part of the ordinary payroll process of the employer. The new compliance obligations do not change existing PAYG withholding or Superannuation Guarantee Charge obligation due dates.
Prima facie, for most affected employers, complying with the change should merely involve making sure that their payroll software complies with STPR requirements. However, due to the amount of information that the Commissioner will receive, any errors made by employers substantially increase the risk of an ATO review. As such, it is recommended that employers conduct a review of their internal processes and their compliance with PAYG withholding, and Superannuation Guarantee Charge Compliance.
Who is affected?
A substantial employer is defined as an entity or wholly owned group that employs 20 or more individuals (note that this is not based on FTE equivalents, but the number of individuals employed).
The test for a substantial employer is imposed on 1 April preceding the reporting year. However, once an employer becomes a substantial employer, it must apply to the Commissioner to be exempt from the STPR requirements if its number of employees decreases permanently below 20 in a later year.
The Commissioner has the discretion to treat an employer as exempt from the STPR requirements on a case by case or class basis upon application by affected employers (including where the number of employees is expected to drop permanently below 20). It is anticipated that the Commissioner will provide automatic exemption from the STPR requirements in certain circumstances (via legislative instrument). The circumstances under which automatic exemption will be allowed are currently subject to a consultation process with the ATO.
What are the changes?
Broadly, the main changes are as follows:
- Employees will have the choice of completing Super Choice forms and Tax File Number declarations online (but employers must still provide paper forms to employees).
- PAYG withholding and gross payments at the employee-level will need to be reported to the ATO on or before the withholding amount is due. Currently the reporting occurs in the Activity Statement cycle of employers (on an aggregated basis).
- Ordinary Time Earnings and salary or wages at the employee-level for Superannuation Guarantee Charge purposes must be reported on or before the time of payment. Currently, this information is not reported at all.
- Superannuation Contributions at the employee-level must be reported to the ATO on or before the time of payment. Currently, the ATO does not directly receive the report from employers.
- Affected employers will no longer be required to issue payment summaries to employees and PAYG annual reports to the Commissioner (provided Reportable Fringe Benefit Amounts and Reportable Employer Superannuation Contributions are also reported through the Single Touch Payroll software prior to 14 July).
- Employees will be able to access real time payroll information and annual reports online via an ATO portal.
What does this mean?
The Commissioner will have real-time up to date information to use for data matching to determine whether employers have complied with PAYG withholding and Superannuation Guarantee Charge obligations. This is likely to increase the amount of compliance activity (particularly for superannuation guarantee charge), as well as the speed at which the Commissioner reacts to any breach of the requirements.
While it is the intention for the Commissioner to provide some leeway to allow taxpayers to self-correct errors, the historical real-time information can be used to assess a taxpayer’s penalty for a future breach of the tax law (i.e. whether the taxpayer has a good compliance history and reliable processes).
Once the employer’s system has become fully automated, there will be fewer reporting requirements and compliance costs. For example employers will no longer be required to report PAYG withholding tax through activity statements, and may not be required to provide annual payment summaries to employees and the annual report to the ATO.
What should employers do?
Employers will need to assess whether the STPR requirements will apply to their circumstances, and whether they should apply for the Commissioner’s discretion (e.g. they have a large workforce made up of active and inactive casual staff).
Over the next 8 to 10 months, it is essential that employers assess the robustness of their payroll processes and evaluate whether there are any systematic errors in the way they treat the various types of remuneration paid or provided to employees through the payroll system. This will give them time to implement any changes that are necessary or correct any mistakes.
Prior to 1 July 2018, employers should check that any class variations for PAYG withholding requirements are up to date (e.g. on car allowances).