Find out who must report through Single Touch Payroll (STP), which businesses can apply for a deferral and the features of seven software products you can choose from.
Australian small businesses have been required to report through Single Touch Payroll (STP) since 30 September 2019, but recent reports indicate that not all businesses have started doing so.
So it's time to make sure you understand what this new reporting requirement means for your business, if you haven’t already done so.
The Australian Taxation Office (ATO) describes STP as "a new way of reporting tax and superannuation information to us.”
“You will report your employees' payroll information, such as salaries and wages, pay as you go (PAYG) withholding and super information to us each time you pay them."
That’s arguably one of the biggest accounting-related changes for businesses since the introduction of the Goods and Services Tax (GST) in 2000. And it’s likely to encourage some employers that weren’t using payroll software to start doing so.
But you shouldn’t see STP as a burden. Automatic reporting isn't difficult to set up and shouldn’t make payroll a more difficult or time-consuming task. In fact, it shouldn’t require anything more than an extra mouse click.
STP should also save you time at the end of the financial year, because you won’t have to provide additional reports to the ATO or payment summaries to your employees. End-of-year processing just involves making a finalisation declaration.
Also keep in mind that the ATO has stated that during the first year of STP reporting small businesses won’t be penalised for missing STP reports, submitting them late or making mistakes on them.
This article is intended to give you a summary of some of the issues to consider – and a guide to the key features of seven low-cost, standalone STP payroll software solutions for micro businesses.
Keep in mind that the STP rules aren’t as simple as some sources suggest and this article doesn’t cover every aspect of STP reporting – so we recommend you seek advice from your tax professional or the ATO before making any decisions about STP, especially if your situation isn't clear cut.
Which businesses must report through STP?
If your business has 20 or more employees, it should have been reporting through STP since July 2018. Keep in mind that in this context, “employees” can include:
full-time employees
part-time employees
casual employees
employees based overseas
any employee absent or on paid or unpaid leave.
So, if you have 40 employees each working half-time that counts as 40 employees, not 20 full-time-equivalent employees.
These people do not count as employees in this context:
employees who have ceased working for you
independent contractors
staff provided by a third-party labour hire organisation
office holders
religious practitioners
'closely held payees' such as family members of a family business, directors or shareholders of a company and beneficiaries of a trust.
If your business has 19 or fewer employees, it should have started reporting through STP by 30 September 2019 – unless you obtained a deferral from the ATO.
Which small businesses can defer STP reporting?
Any small employer can request a deferral if it needs more time to start STP reporting, but you have to justify why you should be granted one. According to an ATO spokesperson "The degree of substantiation differs depending on what they state the reason is and how long they request the deferral to be."
The ATO will consider deferrals if you are using customised payroll software and need time to configure and test it, for example. You can also apply for a deferral if you’re in an area with intermittent or no internet connection.
If your business is a ‘micro employer' (it has one to four employees) and has a non-computerised payroll system – which an ATO spokesperson told us "could include running your payroll manually and keeping records on a spreadsheet or paper” – then you may have also been eligible to lodge quarterly through your registered tax or BAS agent until 30 June 2021. But your agent had to apply on your behalf by 30 September 2019.
Micro employers in the agriculture, forestry and fishing industries, can apply to report quarterly until 30 June 2021, though they must report through STP.
What about sole traders and business partners?
Not all sole traders have to report through STP, because they may not be counted as employees of their own business. An ATO spokesperson told us "sole traders are not employees of their own business" if they are the sole director and sole shareholder of the company through which they conduct the business. In most cases, these arrangements are classified as personal services income. So "unless the sole trader pays other employees, a sole trader working in their own business is not in the scope of STP."
This also means that if you are a sole trader and have four employees, you can take advantage of the concession for micro employers mentioned earlier, because you aren't included in the headcount.
If your business has two or more closely held payees and no other employees, STP reporting comes into effect from 1 July 2020, with the option to report quarterly rather than at the time of each payment.
Business partnerships that have employees are treated the same way as any other employer in this context. However, the partners are excluded from the employee headcount. That’s because “partners in a firm/partnership are not employees and payments to partners are considered distributions of partnership profits and not salary and wages, thus they are not subject to PAYG Withholding". Consequently such payments are not subject to STP reporting.
STP reporting products
Once you are required to start STP reporting, you have two main options:
engage a payroll service that provides STP reporting, such as one offered by your tax or BAS agent
use payroll software that incorporates STP reporting. This includes accounting software with this feature.
If you are going to do your own reporting, you must do it electronically.
Most small business accounting systems now incorporate STP reporting, but if you're using an old version of a desktop product you may need to install an update.
The advantage of payroll software that's part of a broader accounting package is that once you set it up, you won’t need to spend extra effort transferring payroll data into your accounts. Examples of STP-enabled accounting products include:
Xero.
However, if your business is so simple that you don't need an accounting program, you can use standalone payroll software that handles STP.
You might also take this approach if you want to be hands-on with payroll, while using a bookkeeper or accountant to handle other accounting functions. In that case, we strongly advise you to discuss this with a professional, as you may need to pay significantly higher fees if you choose a program that doesn't fit in with their way of working.
You don’t have to use payroll software to do STP reporting though. There are products that just take care of lodgement – you enter the data manually or export it from your spreadsheet, and the software sends it to the ATO in the required format.
The ATO lists free and cheap STP-enabled payroll and lodgement-only products and the Australian Government also lists all commercially available STP payroll products, including accounting and payroll software. These include:
Easy Payslip: Cloud product (Android and iOS apps available), prices starting at $8.80 a month for up to four employees
CloudPayroll: Cloud product, prices starting at $10 a month for up to four employees
Cashflow Manager Wages 1-4: Windows software priced at $9.90 per month (charged annually) for up to four employees
KeyPay Standard: Cloud product, prices starting at $4 per month per employee
Microkeeper: Cloud product, prices starting at $9 a month for up to four employees
Myaccountant Payroll: Cloud product, prices starting at $2 per employee per month
MYOB Essentials Payroll: Cloud product, prices starting at $10 a month for up to four employees
Payroller: Free cloud product (Android and iOS apps available) with unlimited payrolls and employees
Reckon Single Touch Payroll App: Free Android/iOS product. It only handles STP reporting – you must enter the details of your pay run. Could be useful if you do payroll on paper or spreadsheets
Single Touch Lite: Cloud product priced at $7.50 a month for up to 30 employee STP transmissions, then 25 cents per employee per event. Only handles STP reporting - you must to enter the details of your pay run or upload a CSV file containing the information. Could be useful if you do payroll on paper on in spreadsheets
SmartPayroll STP Basic: Cloud product priced at $10 a month for up to four employees
Xero Payroll Only:Cloud product priced at $10 a month for up to four employees.