payroll

Steps to process and finalise payroll

With mere weeks remaining in FY24, now is a great time to think about your EOFY preparation.

A good place to start? Preparing your payroll to make finalisation as easy as possible come July.

Completing your EOFY is better off in Xero. To help Xero Users get through from start to finish, we’ve included some handy steps to guide you through the process.

1. Check your employees’ records 

As part of Single Touch Payroll (STP), there are key compliance requirements that affect the way employees are set up in Xero. 

In Xero Payroll, all active and terminated employees (who will be included in the STP finalisation for the financial year) will need an employment type, income type and tax scale defined in their records. 

Review your employees’ records to ensure they’re STP compliant. You can run the Employee Contact Details report to check for accuracy, keeping a close eye on things like date of birth, email address and postcode.

2. Review pay items and their settings

Under STP,  the ATO requires the correct reporting categories to be used for your earnings, deduction and paid leave pay items. Allowances will also need to be assigned an appropriate reporting type.

Because these categories tell the ATO how to treat each type of payment you’re reporting through STP, it’s important to double-check that the earnings, deduction, paid leave and allowance pay items used in the current financial year are correctly assigned. 

3. Post and file any pay runs for the 2023/2024 financial year

Any pay runs with a payment date in this financial year will need to be posted and filed before you complete your employees’ STP finalisation. If these pay runs are to be reported in FY24, remember that you’ll need to make sure the payment date is on or before 30 June 2024.

Be sure to check that all of your pay runs have been filed to the ATO successfully using STP.

4. Process any outstanding superannuation payments

To claim a deduction on superannuation accruals submitted via auto super for the current financial year, super batches should be approved no later than 2:00pm AEST, 18 June 2024. We recommend marking this date in your calendar so you don’t forget.

If you’re not registered for auto super, it’s not too late. Alternatively, the payments can be made manually outside of Xero.

5. Reconcile your payroll accounts

After processing all pay runs for the financial year, it’s important to forensically check the accuracy of your reporting. One way to do this easily is by generating the Payroll Activity Summary report and comparing it with the General Ledger report. 

You can specify a custom date range in both reports to help find any discrepancies. If you come across any discrepancies in your payroll accounts, you can use the remove and redo feature to edit the transaction and allocate it to the correct accounts.

Troubleshooting tips

  • If you have multiple payroll expense accounts for earnings or superannuation, be sure to add up the totals for each account when comparing them to the Payroll Activity Summary report
  • Use the Account Transactions report to identify any transactions that may have been incorrectly reconciled against your Expense Accounts
  • Check for any manual journals that may have impacted your totals by running the Journal report and clicking on Manual Journals
  • If you’re unable to locate a discrepancy, try running your reports using a smaller date range to narrow down the issue
  • If you started using Xero midway through the financial year, double-check that the employee opening balances match your organisation’s conversion balances to avoid any discrepancies.

6. Review the Payroll Activity Summary report against the Payment Summary Details report

It can be easy to get the Payroll Activity Summary report and the Payment Summary Details report confused, so remember you’ll still need to compare this information if you’re completing an STP finalisation. You can run these two reports for a custom date range and make sure the information balances.

It’s important to note that the Payroll Activity Summary report shows gross earnings, whereas the Payment Summary Details report shows taxable earnings.

If there are salary sacrifice or pre-tax deductions that have been processed during the financial year, they will need to be deducted from the gross wages that show in the Payroll Activity Summary report. The total should then match the Payment Summary Details report (note that this will only show truncated values – the cents will not show in this report).

7. Remember to identify and amend any mistakes

Any errors made throughout the financial year can be corrected using an unscheduled pay run. Simply create the pay run for the required period and enter the adjustment amounts. You can even enter negative values, if needed.

You will need to check that the payment date of the unscheduled pay run falls within the correct financial year (for example, on or before 30 June 2024) to ensure it’s reported correctly.

8. Process STP finalisation

Last but not least, it’s time to process your STP finalisation. Xero’s product team has been working to make this process simpler, and easier to understand. Xero users might notice some tweaks this year, such as an improved layout for the STP YTD Summary and clearer totals columns. 

You’ll need to file at least one pay run before you’re able to complete the STP finalisation process. Your first submission will include all year-to-date (YTD) payroll information that has been entered into Xero.

Keep these tips in mind to help you along the way:

  • Information included in the STP finalisation will pre-populate based on the information processed in Payroll – you’ll be able to see gross totals, taxes and super — you can also view and easily edit RFBA and RFBA-E (reportable fringe benefit amounts)
  • If you need to report any leave paid out on termination as ‘Lump Sum A’ or ‘Lump Sum B,’ you can do this by processing an unscheduled pay run
  • If you have terminated any employees on or before 30 June 2024 who need fringe benefit tax (FBT) amounts reported, you can use the toggle Show terminated employees for RFBA at the bottom of the STP finalisation page
  • Any Employment Termination Payments (ETP) that have been processed can be shown by clicking View Report to see the STP YTD Summary
  • If you started using Xero part way through the financial year and need to report employee opening balances through STP
  • Based on the ATO’s requirements, gross payments are reported as the pre-sacrificed amount. This means salary sacrificed amounts, such as pre-tax deductions and reportable employer super contributions (RESC), are included in gross payments.

Looking ahead to FY25

The Government has made changes to individual income tax and superannuation guarantee rates, as well as thresholds such as STSL indexation (study and training loan indexation). These come into effect 1 July 2024. Pay runs with a payment date of 1 July 2024 or later will have these new rates automatically applied.

The super guarantee (SG) rate is increasing from 11 to 11.5 per cent on 1 July 2024. Any employees with a superannuation line set up with a rate type of statutory rate will be automatically updated. If their rate type has been set up as Percentage of Earnings, you will need to ensure you edit this percentage manually. These changes to income tax rates and thresholds will also be automatically applied in pay runs with a payment date of 1 July 2024.

If your organisation is impacted by changes to the minimum wage, you will need to update your employees’ pay templates. To find out if these changes could affect you, please refer to the Fair Work Ombudsman.

Looking for EOFY payroll help? Call Allan Hall’s Xero Certified Advisors for everything you need to know (and do) to round out FY24, and set up strong for the new financial year ahead.

CONTACT ALLAN HALL BOOKKEEPING

payroll

Time to transition to STP Phase 2

All three stages of Xero’s STP Phase 2 rollout are now available

Over recent months, Xero has been keeping us updated on Xero’s Single Touch Payroll (STP) Phase 2 rollout.

This will see businesses build on their existing STP reporting to share more information with the ATO and other government agencies whenever you process a pay run.

Xero has now announced that all three stages of the rollout are available, meaning you can get your payroll data STP Phase 2 ready today. 

Not sure where to start? Xero has compiled all the information you need.

Xero’s STP Phase 2 reporting deferral is through to 31 March 2023, meaning Xero Payroll customers will have until the New Year to activate STP Phase 2. However, we strongly recommend getting your payroll data ready as soon as possible to stay ahead of this important compliance deadline.

How to complete each step of your transition to STP Phase 2 in Xero 

To start your transition now, head over to the STP Phase 2 Portal in Xero Payroll to progress through each of the following steps: 

Step one

The first part of this process is transitioning your existing employee profiles to be STP Phase 2 compliant. This means providing new details, like whether they’re an employee or contractor. Step one also includes providing additional information when onboarding new employees to Xero Payroll. More information can be found here.

Step two

You’ll need to identify and update certain pay items with the new earnings categories defined by the ATO for STP Phase 2 reporting. This is because gross amounts for each income type will now need to be reported as a separate itemised amount, like overtime or allowances. Head to Xero Central for more details, including a breakdown of the different earnings categories.

Step three

This is the final step in the STP Phase 2 transition which will break down paid leave into additional subcategories. Xero supports users with a guided experience in payroll so you can easily update existing paid leave types to meet the new ATO reporting requirements. You may also find that some of your leave pay items already have the correct reporting category assigned. Visit Xero Central to learn more about this stage.  

TIP: Remember to mark each step as complete in the STP Phase 2 Portal before moving forward. This ensures your payroll data is accurate and could help reduce filing errors later down the line.

Reporting all purpose allowances

With STP Phase 2, all purpose allowances must be disaggregated, meaning they’re reported separately to the employee’s hourly or ordinary earnings rate. 

In Xero Payroll, you can create a separate allowance pay item with the appropriate type for each allowance included in the all purpose amount. You will also be able to select an option for the allowance to be included in the calculation of overtime and paid leave rates.

This is intended to reduce the manual burden on payroll admins to calculate and adjust an employee’s overtime or paid leave within their payslip. This occurs when an employee’s award states that both the allowance is to be paid for all purposes — including when calculating leave and overtime. Head to Xero Central for more information on these changes.

There’s no time like the present – start transitioning your payroll data today 

Now that all three stages of Xero’s STP Phase 2 rollout are available, it’s time to transition your payroll data. As we come closer to the deadline, the sooner you can tick this off your to-do list, the more prepared you’ll be.

Remember, all employing Australian businesses must become STP Phase 2 compliant. So if you’re working with Allan Hall to make the transition, keep in mind that our accountants are also helping others to do the same. Stay patient as we work through the process, and in the meantime, check out Xero’s Resource Hub or Xero Central for more information.  

Further support

To help you navigate the transition to STP Phase 2, Xero has created a comprehensive guide. This has what you need to know (and do) to make the move, from step-by-step instructions to detailed explainers on leave, earnings and reporting categories. 

Looking for more information? Head to Xero Central or refer to the ATO’s employer reporting guidelines.

What’s more, Allan Hall’s Accountants are also here for support, so reach out if you need further guidance from our team of Xero Certified Advisors.

CONTACT ALLAN HALL

Xero STP Phase 2 leave transition

Xero STP Phase 2 rollout

Everything to know (and do) for the final stage of Xero’s STP Phase 2 rollout

By now, most business owners are probably familiar with Xero’s approach to getting payroll data ready for Single Touch Payroll Phase 2.

This will see businesses build on their existing STP reporting to share more information with the ATO and other government agencies each time employers process a pay run. And the good news is, Xero now arriving at stage three – the final stage of their transition to STP Phase 2.

Xero’s STP Phase 2 reporting deferral deadline is now 31 March 2023 meaning Xero Payroll users will have until the New Year to activate STP Phase 2. However, you can get your data ready today. In fact, it is recommended that you complete each stage sequentially as they are made available in Xero Payroll.

The three stages of transitioning to STP Phase 2 in Xero

Stage one – Delivered in August: The first part of this process is transitioning your existing employee profiles to be STP Phase 2 compliant. This stage also includes providing additional information when onboarding new employees to Xero Payroll.

Stage two – Delivered in September: You’ll need to identify and update certain pay items with the new earnings categories defined by the ATO for STP Phase 2 reporting.

Stage three – Rolling out from late October: This is the final stage in the STP Phase 2 transition which will break down paid leave into additional subcategories. We’ll support you with a guided experience in payroll so you can easily update existing paid leave types to meet the new ATO reporting requirements.

So you’re ahead of the deadline, it’s best to transition your payroll data as soon as possible. Head over to the STP 2 Portal in Xero Payroll to progress through each stage.

Stage three involves the introduction of new paid leave categories

STP Phase 2 introduces a set of new ATO reporting categories for use in your leave pay items. You will need to categorise any existing paid leave types you have set up in Xero Payroll. The categories available include:

Other paid leave (Type O)

  • Annual leave
  • Compassionate and bereavement leave
  • Family and domestic violence leave
  • Long service leave
  • Personal (sick/carer’s) leave
  • Rostered day off
  • Special paid leave
  • Study leave
  • Time off in lieu

Ancillary and defence leave (Type A)

  • Community service leave
  • Defence reserve leave
  • Jury duty leave

When these types of leave payments are correctly categorised in STP filing, the data can be more easily shared across government departments (like Services Australia). Learn more about the process of updating leave categories in Xero Payroll here:

Xero will be launching the leave pay item transition tool to help you with this final stage and has built a transition tool to assist you with easily categorising your existing leave pay items to meet STP Phase 2 reporting requirements. Xero has also been rolling out changes to Xero Payroll in preparation for STP Phase 2. As a result, it’s likely that some leave pay items may already have the correct reporting category assigned.

What Xero Users need to do now

Head to the STP 2 Portal in Xero Payroll and progress through each stage of the transition process to get your payroll data ready for Phase 2 reporting.

  • Stage one: Updating employee records to meet the new STP Phase 2 filing requirements.
  • Stage two: Updating income pay items to the new STP Phase 2 filing requirements.
  • Stage three: Categorising your existing paid leave types to the new filing requirements.

It’s important to mark each stage as complete in the STP 2 Portal before moving forward. This ensures your payroll data is accurate and could help reduce filing errors later in the financial year. Once you’ve completed all three stages, your business will be ready to switch to STP 2 later in the financial year.

Xero will be ready to report your updated payroll data to the ATO by mid-December 2022. While there is a deferral until 31 March 2022, we strongly recommend that you get your data ready for the transition as early as possible. If you’re unsure about updating your payroll data for STP Phase 2, contact our Bookkeeping team on 02 9981 2300.

CONTACT ALLAN HALL

person writing and typing on laptop

STP Phase 2 reporting errors

Getting STP Phase 2 reporting right

Single Touch Payroll (STP) Phase 2 reporting started on 1 January 2022.

So far, more than 200,000 employers have started reporting STP Phase 2 information for over 3 million individuals.

We’ve noticed some mistakes people are making as they move to STP Phase 2 reporting and are sharing the most common mistakes so you can avoid them, such as:

  • re-mapping pay codes or categories incorrectly. Check if you have pay codes for items you need to list separately, such as bonuses, commissions and overtime
  • continuity of year-to-date (YTD) reporting. If the solution you use requires you to input your existing YTD amounts manually; make sure you bring over all the amounts you need to
  • incorrectly categorising allowances. You must report all allowances separately in your STP Phase 2 reporting, which includes 8 allowance categories and one for ‘other allowances’. Only report an amount as an ‘other allowance’ if it doesn’t fit into one of the 8 categories.

Related reading

CONTACT ALLAN HALL

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Single Touch Payroll Phase 2

What every small business needs to know

Single Touch Payroll (STP) Phase 2 means every business that employs staff will be required to get on board with the expanded program.

STP Phase 2 requires additional information to be reported to the ATO, enabling other government agencies to leverage the STP infrastructure to receive information and support the administration of the social security system.

Single Touch Payroll Phase 2 in a nutshell

With STP Phase 2 reporting live from 1 January 2022, there’s expanded capturing and sharing of payroll and employee data as compared to the original rollout of Phase 1.

This extended capturing by the ATO is shared more widely with relevant government bodies – such as social services – and fills certain gaps in payroll information sharing that wasn’t previously being transmitted. This new data remit remains an automated process, handled through STP-compliant payroll software such as cloud accounting apps and payroll systems.

What the new is data being shared?

The ATO is looking to patch knowledge gaps in the payroll submission process to support social security purposes and get a better understanding of employee payment details.

So, in addition to the payroll and employee information you’re already sharing through STP Phase 1 (salaries, PAYG, superannuation), Phase 2 involves capturing the following pay items, employee records and new fields:

  • employment basis
  • paid leave
  • allowances
  • overtime
  • cessation details and termination reasons
  • child support deductions
  • salary sacrifice
  • lump sum payments
  • country codes

Under STP phase 2 reporting employers are also required to separately itemise the components which make up the gross earnings amount by reporting all allowances separately, not just expense allowances that may have been deductible on an employee’s individual income tax return.

Digital Service Providers (DSPs)

STP Phase 2 requires employers to fill out employees’ payroll data correctly in your chosen software solution. Be sure to use a DSP that can roll out compliance updates to their software.

Updates to STP will be made by DSPs on users’ behalf and they are working with the ATO to ensure timely and competent compliance and delivery. Employers are already filling out this payroll information, so there are no new fields to capture on your end. In this sense and the automated nature of STP, employers are not required to do anything further than what is already being done under Phase 1.

What it will do is decrease the compliance burden upon businesses in terms of reporting. For example, under Phase 2 employers are no longer required to submit TFN declaration forms.

What will not be changing

The rollout of STP Phase 2 following does not change:

  • the way Single Touch Payroll is reported
  • Single Touch Payroll reporting dates (on or before payday)
  • the types of employee payments required for Single Touch Payroll reporting
  • employers’ current tax and super obligations
  • end of year finalisation requirements and submission responsibilities

The next stage of the Single Touch Payroll (STP) journey is underway

STP Phase 2 will see businesses build on their existing payroll reporting to share more information each pay run.

Most employers are now reporting through STP. You will need to start reporting if you have not yet transitioned, unless you have an exemption or a deferral.

What do business owners need to do?

If you’re currently STP compliant with payroll software that’s enabled, you should be running your payroll as usual. If you’re a Xero or MYOB user, your DSP will confirm when your solution is ready for STP Phase 2 reporting.

If you have any queries or concerns over your payroll solution or if you need reassurance, please consult your Allan Hall bookkeeper or accountant.

CONTACT ALLAN HALL

Related reading

payroll

Expansion of STP (Phase 2)

Single Touch Payroll (STP) is part of the government’s commitment to streamlining employer reporting obligations

Most employers are now reporting through STP. You will need to start reporting if you have not transitioned yet unless you have an exemption or a deferral.

In the 2019–20 Budget, the government announced that STP would be expanded to include additional information.

Including this additional information will:

  • reduce the reporting burden for employers who need to report information about their employees to more than one government agency
  • support the administration of the social security system.

The mandatory start date for STP Phase 2 reporting was 1 January 2022 however the ATO is working with Digital Service Providers (DSPs) that are updating their solutions to support Phase 2 reporting. Your DSP will confirm when your solution is ready:

  • Xero users have until 31 December 2022 to start reporting the additional information required for ATO STP Phase 2 (See STP Phase 2: Steps for a successful transition)
  • MYOB has obtained a deferral from the ATO which means users have until 1 January 2023 to move to STP Phase 2.

Some DSPs, despite their best efforts, will need more time to get ready and transition their customers. They will advise you if the ATO has approved a deferral for users to start reporting later than the mandatory start date.

If you can transition to STP Phase 2 reporting when your solution is ready, then you do not need to ask the ATO for more time.

If you need more time in addition to your DSP’s deferral, you must apply. See STP expansion (Phase 2) delayed transitions.

CONTACT ALLAN HALL

Related reading — what small businesses need to know about STP Phase 2

payroll

Single Touch Payroll changes

There have been changes to Single Touch Payroll (STP)

Employers are required to report additional payroll information now or once your payroll product is ready.

You need to start reporting additional information on or before each payday — this is known as STP Phase 2.

STP Phase 2 started on 1 January 2022

Some Digital Service Providers (DSPs) need more time to update their payroll software products and transition users. If your DSP has a deferral, this covers you.

It’s important you understand which of the following circumstances apply to you:

  • Your payroll product is ready — it’s time for you to start STP Phase 2 reporting now or have a plan in place to transition as soon as possible
  • You are covered by a DSP deferral — know when your product will be ready and that you are ready to start Phase 2 reporting when it has been updated, or no later than the first payday after your DSP deferral expires:
    • MYOB 01/01/2023 — however MYOB does have this updated in their program for people to start to update
    • Xero 31/12/2022
    • Reckon Products 01/01/2023     
  • Your payroll product is not being updated to offer STP Phase 2 reporting — your DSP will let you know if they have another product you can use. If not, you’ll need to choose a product that offers STP Phase 2 reporting.

If you’re unsure as to which of these circumstances applies to you, speak with your provider or your tax and BAS professional.

What you need to do

Many DSPs are releasing changes progressively. Your DSP will provide you with instructions so it’s important to follow them.

The ATO has compiled some resources to help business owners to understand the changes and prepare. These include a factsheet, checklist and detailed reporting guidelines which outline the STP Phase 2 reporting requirements. These can be accessed at ato.gov.au/STPresources.

The additional STP information is intended to help Services Australia customers, who may be your employees, get the right payment. It will also reduce the need for you to provide information about your employees to multiple government agencies.

Need extra time to transition?

You can apply for a delayed transition if you need more time to start STP Phase 2 reporting. Visit ato.gov.au/delayedstp2transitions to find out how to apply.

CONTACT ALLAN HALL

payroll

Single Touch Payroll changes from 1 July

What small business needs to know about changes to STP this EOFY

Many employers will already be using Single Touch Payroll (STP) however, with the ATO rolling out the initiative in stages, there are still some that have been offered exemptions. That is, until now.

From 1 July 2021, most small businesses will need to be STP compliant. This includes small employers with closely held payees, as well as some micro businesses and seasonal employers.

Although EOFY is just around the corner, there’s still time to get prepared. The changes could mean that you have to opt into STP for the first time, or start filing employees who aren’t already being reported with the ATO.

What does closely held mean?

According to the ATO, a closely held payee (otherwise known as a closely held employee) is an individual directly related to the entity from which they receive payments. For example, this would include relatives in a family business, or beneficiaries of a trust fund.

Depending on your working arrangements, some businesses process irregular or infrequent pay runs for family members on their books. That’s why, up until 1 July 2021, small employers (with 19 or fewer payees) have been exempt from STP reporting of closely held payees.

What’s changing with how my business remunerates closely held payees?

By the end of FY21, employers with fewer than 19 employees will have to report closely held salaries or wages through STP. Every family member on your books counts and there are three payment reporting requirements to be aware of:

  1. Report and process payroll through STP on or before payday
  2. Report the accurate payroll amount with STP once per quarter, on or before the BAS due date
  3. Report a reasonable estimate with STP once per quarter, on or before the BAS due date

Out of the three reporting options, there’s no one-size-fits-all approach – it comes down to what works best for your business’ needs.

Are there any other changes I need to know about?

As well as small employers with closely held payees, some micro and seasonal employers will now have to report on or before the payment date – not quarterly – unless they receive a concession. This includes businesses with four or fewer employees, including those in the following industries:

  • Agriculture, fishing and forestry
  • Not-for-profit clubs and associations
  • Seasonal and intermittent employers

Micro businesses in each category may still be eligible for STP reporting concessions, such as quarterly or exceptional circumstances exemptions.

TIP: Ask us about how you can apply for a concession

The STP changes for this EOFY are one of the final hurdles in transitioning most Australian small businesses to a more streamlined reporting system. Although the initiative is still evolving, with the support of the Allan Hall team, you’ll be able to tackle any new changes head on.

With EOFY fast approaching, it’s best to reach out to us sooner rather than later to talk through the reporting option that’s right for you, and any steps you need to be aware of before 1 July. Contact Allan Hall’s Tax & Accounting specialists in Brookvale on 02 9981 2300 for specific advice about your circumstances.

CONTACT US

payroll

Does your business need a payroll audit?

Australia’s employment legislation is extensive, broad and can be incredibly complex.

And, if you don’t have a thorough understanding of your obligations to your employees, then your business could be at risk of underpayment of employee wages. 

The underpayment of employee wages, or what the media has cleverly coined ‘Wage Theft’ can occur in any business. Recent media publications have shone a light on this issue, highlighting that every business, no matter the industry or business size, is at risk if wage obligations are not met. 

It is critical you ensure your business is compliant with all legislation to avoid costly liabilities or negative publicity down the track, as a result of an employee claim or an ATO, Work Cover or Fair Work audit. 

The Fair Work Ombudsman has found that the majority of wage underpayments are caused by employers failing to meet their obligations in the following areas: 

Does your business need a payroll audit? 1

Employers must understand the key instruments their employees may be covered by as outlined below. These key instruments along with many more can have the ability to dictate what, when and how much an employee is paid. 

Does your business need a payroll audit? 2

Businesses who do not understand what industrial instrument covers their employees, or businesses without proper processes and systems in place, can often be unintentionally underpaying their staff, as rates of pay can vary greatly and are dependent on several factors. 

How can we help at Allan Hall HR? 

Australia’s industrial relations system can be difficult to navigate, especially without the help of HR professionals. This is where our team at Allan Hall HR come in and can assist you to navigate through this process efficiently and effectively.  

Allan Hall HR offers compliance payroll audits for small, medium and large businesses, where we review your business operations against legislation requirements and recommend appropriate resolution of any non-compliant matters. We can also provide you with ongoing advice, assistance and tailored employment documentation to ensure you are compliant. 

Does your business need a payroll audit? 3

If you have any immediate questions regarding payment of your employees or any other HR matter, or are seeking support with a partial or full wage audit for your team, please feel free to contact our experienced HR Consultants today, call us on 1300 675 393 or read more here »