What is Single Touch Payroll Phase 2, and what are the concerns?
I have always been a passionate advocate for real-time reporting and its benefits since conceptualised 30+ years ago. From the inception of Single Touch Payroll (STP) by the Australian Taxation Office (ATO), I have been an active participant of this ongoing journey. I have also been a member of the Single Touch Payroll Advisory Group and many other ATO STP Working Groups since 2016.
Start date of 1 July 2021 for mandatory STP Phase 2 reporting is too soon! (3/02/2021 - STP Phase 2 start date now 1 January 2022)
The Legislative Instrument (LI), Taxation Administration - Single Touch Payroll - Amounts to be Notified Determination 2020, defines the extension of the reporting requirements classified as STP Phase 2 requiring a change to technical submission of STP data. The Explanatory Statement (ES) to the Determination originally specified start date of 1 July 2021 (ES - 10.). After listening to the feedback provided from the Public Consultation period, the Australian Taxation Office (ATO) has now revised the date to 1 January 2022. This new date provides the necessary breathing room required for all those affected by the changes. The original date was a concern to everyone involved with payroll; the social responsibilities and duty of care attached to the data reported with STP Phase 2 are of paramount importance. The level of detail involved with Phase 2 means Employers will have to implement change management before reporting can begin; systems will need to be updated and configured, all of which will involve additional costs. This requirement is at odds with the Compliance Cost assessment, determined as Minor (ES - 12.).
STP Phase 1 was only about reporting the Payment Summary information. In essence, as long as the data was corrected and reported in time for the Individual Income Tax Return (IITR), there was no detrimental effect on the recipient's welfare.
Phase 2 is a fundamental shift from reporting income, to reporting earnings with Period values calculated on YTD amounts' movements.
Phase 2 provides significantly increased and enhanced granular information that can adversely affect people's lives if not reported correctly. The Government will make decisions based on this detailed input that has never been previously available for consumption by multiple Departments and Agencies, such as Services Australia and Child Support. This data will affect those in society that are the most vulnerable.
The moment the technology was available to provide this detail level, Administration would embrace the opportunity. Now it appears, even considering the learnings from previous experiences, decisions are being made that may result in Government being on the same path again.
Phase 2 is about Compliance driven by providing comprehensive guidance.
Phase 2 primary focus was not just about adding fields, it was about compliance, ensuring the design identified missing guidance, and the gaps addressed. Whilst it has been argued, some aspects have not changed since Phase 1, difficulties are resulting from the lack of detailed guidance in this previous Phase which created misunderstandings and the reporting of ‘junk’ data. Part of the efforts with Phase 2 was to capture these issues and prevent problems in the future by providing additional detailed information.
This second Phase has shone the spotlight on the ATO and helped identify the concerns that may result in non-compliance with particular attention paid to the context and nuances. In some cases, the existing ATO guidance is a paragraph of text. Resulting from the scope of Phase 2, numerous meetings and hundreds of hours were dedicated to taking fragmented information, combining this knowledge into a collection of documents thereby providing for consistency, alignment, correlation where there was once discrepancy and contradiction. This journey offered significant learnings for all the participants.
In the first instance with the publishing of the Business Implementation Guide (BIG) and the Message Structure Table (MST), DSPs (Digital Service Providers) had a starting point to evaluate the requirements, they did not have the level of detail required to build their solutions. Phase 2 identified numerous areas where the existing ATO guidance is deficient, contains gaps, is incomplete or does not exist; now being addressed in the most recent documentation. The provision of comprehensive Position Papers assisted in providing the intricate detail required to support the BIG. The ATO is also providing Guidance Notes as an adjunct on an ongoing basis when issues are identified and need addressing with additional detail.
DSPs, Employers, Tax Practitioners need more time to facilitate the required changes, effectively and correctly.
DSPs now have to identify what changes are required in their solutions to accommodate the STP Phase 2 changes. In some cases, current products may require a complete rewrite causing delays and driving up development costs.
DSPs carry the enormous responsibility of ensuring payroll solutions are compliant and report correctly.
For many years, DSPs have been asking for an Assurance Framework to prevent the ATO from being sent and consuming ‘junk’ data. It has taken until recently for the ATO to heed and identify the need, resulting in Enhanced Conformance Testing (ECT). This solution may assist in alleviating some of the DSPs concerns. Still, this offering is not ready. What is required before solutions can start reporting is a robust and hardened testing framework. DSPs need time to ensure their solutions are compliant as a rapid deployment will have an adverse effect. The releases need to be comprehensively tested, well planned and executed.
The underlying principle of Single Payroll Phase 2 should be the quality of the information reported, not the quantity.
I have produced a STP Phase 2 PAYEVNT(EMP).0004 2020 Cheat Sheet to assist in providing context to the foundation framework of STP Phase 2, complimentary to the ATO PAYEVNT.0004 2020 Business Implementation Guide (BIG).
TAPS (The Association for Payroll Specialists) is fully supportive of STP Phase 2 and the benefits it will deliver, but they also believed the 1 July 2021 was an impossible and unrealistic deadline. TAPS provided an online petition so people could also have their voices heard.
DSPs are currently updating their solutions to incorporate the Phase 2 requirements. e-PayDay is building an entirely new Phase 2 payroll offering from the ground up, so watch this space for further information.
For DSPs who may not be ready by 1 January 2022 despite their best efforts, the ATO will provide a deferral framework allowing for applications based on the DSPs individual circumstances to be submitted. The deferral can be applied for by a DSP on behalf of their clients. Details of the deferral framework will be advised by the ATO when available.