The 'S' in STP stands for 'Sting', the costs of reporting with Single Touch Payroll.

The benefits of STP are enormous. Real-time reporting to the Government has been a long time coming and is way overdue. However, the fundamental flaw with the current Single Touch Payroll (STP) model is the cost.

Reporting is mandatory; if you don't, your Business is non-compliant with Government Legislation, and penalties will eventually apply. The Government requires employers to report, but provides no direct means to facilitate this. That's the wisdom and logic behind STP. It is a B2G (Business-to-Government) interaction, and reporting is compulsory; however, the business must bear the costs of reporting to the Government. This approach is a move to a user-pays system.

Standard Business Reporting (SBR) is a Whole-Of-Government initiative and is part of the bigger "digital by default" policy. The ATO, a leading consumer of "big data", has jumped on board to deliver its services via this initiative. STP phase two will involve Services Australia, as well as other users of "big data", which will, at a minimum, quadruple the amount of information currently being submitted in STP. As we all know, technology costs money, so the Government has decided that every Business should spend money to meet a digital agenda that, at its core, is fundamentally about saving Government money. That’s why STP Schedule 23 was in the Budget (Savings) Omnibus Act 2016, to save money by making Businesses "foot the bill" for digital instead.

Why the costs?

Every time you process a pay run and send the data, it incurs a cost. Similarly, receiving a message from the Government costs money. Making mistakes and sending the corrections also costs money!

Reporting using Standard Business Reporting (SBR) was previously free; however, with the transition to SBR2, a cost is now applicable. Yes, software developers can choose to build their own ebMS3 AS4 solution, but it is technically challenging and, as a result, cost-prohibitive for most Digital Service Providers (DSP).

Larger developers may have deeper pockets to afford to produce their solution. However, it still costs for development, and that cost of the service will eventually be passed on to the Employer. I also appreciate that the larger DSPs may not be worried about the potential demise of the smaller DSPs. Still, obviously, reduced competition within the industry would easily result in a 'free for all', allowing the remaining players to increase their pricing effortlessly.

STP enables new commercial opportunities with the introduction of Sending Service Providers (SSPs).

One of the arguments from the Government camp was: "the introduction of STP allows for Commercial opportunities for 3rd parties to create solutions to facilitate STP file submissions". These are now known as Sending Service Providers (SSP). The theory is that the more SSPs that enter the market, the more competition there will be, and the cheaper their service offerings will be. However, the flip side is that the theory can go pear-shaped rather quickly. If a DSP has no alternative but to use an SSP, they are at the mercy of that SSP regarding costs. At their whim, the SSP can increase their costs, or if the DSP goes out of business, Employers cannot report using STP until the DSP sources another SSP. And what happens if only a few SSPs enter the market? It is Australia, and our market is not large enough to support numerous SSPs, making it unfeasible to invest a significant amount of money in building fully-fledged ebMS3 AS4 solutions while achieving a reasonable ROI.

The easy solution.

There is no question that the basic functionality to submit files should have always been provided by using a Government-enabled portal. From a technical standpoint, this would have required development by the DSP using existing API and SBR technologies. Still, the actual cost of sending the data would have been completely negated. Market opportunities would still be available for SSPs by providing value-added features to the basic core functionality facilitated by the Government solution.

The struggle was intense, yet the arguments were entirely disregarded.

There is now another burden in paying to send data to the ATO because of a legislative requirement by the Government. Ultimately, it is an additional cost for the Employer, either indirectly or directly, as some DSPs will not include that cost within their pricing models and offer it as a separate service for an additional fee. Those expenses will be added to the Business's bottom line and will be passed on to everyone added to their goods or service charges.

As an passionate member of the Single Touch Payroll Advisory Group, I made substantial efforts to communicate these cost issues, yet the substance of my concerns were consistently ignored.

The more employees, the higher the cost. How does this translate for Businesses looking at the bottom-line costs of hiring new staff, or will they reduce their workforce? Despite our very bitterly hard-fought efforts, Single Touch Payroll (STP) reporting will incur a cost that every Employer will be required to pay, irrespective of who they use. If you are not seeing the changes now as a result of the implementation of STP, it's only a matter of time before you do.

The Government isn't profiting from STP, but the employer is incurring additional expenses.

The Government is not generating any revenue from STP submissions, but businesses are incurring additional costs by reporting STP information. The ATO does not incur costs to receive and process the data, but employers bear a financial loss when sending the information.

This will not be the first or last example of the Government transitioning to a "user pays' model.

Brett Reed is the founder of e-PayDay Pty Ltd, an Australian payroll software company. He is a veteran in the Australian payroll industry, with a career focused on developing software solutions that address complex regulatory and compliance requirements. Brett maintains regular engagement with Australian Government agencies, concentrating on solutions that benefit both employers and employees in response to proposed legislation.

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