Matthew Addison, executive chairman of the Institute of Certified Bookkeepers (ICB), said that great care and effort has gone into the development of Single Touch Payroll (STP), and that the tax office has been consulting with a wide variety of stakeholders — including ICB, software providers and others — for at least the past three years.
“Single Touch Payroll has been designed to leverage off what were existing natural business systems,” he told My Business.
“Part of my involvement since day dot, when they [the ATO] were first canvassing what Single Touch Payroll would look like, the design changed from a government view on what might be done, and the industry, the software providers and associations… have changed that view so that the ATO could get their outcomes but based on a reporting system that really did work with what employers were already obligated to do.”
Payroll is “ugly”, said Mr Addison, given its complexity covering not just tax but also Fair Work rules, record-keeping and pay slip requirements and superannuation. And for this reason, most employers have turned to digital payroll systems to manage this complexity.
“Single Touch Payroll comes along and says we want some of the data,” he said.
“What we’ve been able to do over the design phase is have the ATO reporting requirements align as much as possible with what business was already doing, or what their systems were already doing.”
Mr Addison agreed that this level of consultation with businesses, industry associations and the like has been lost on some taxpayers, who may view STP as an overnight brainchild being implemented at the whim of the ATO.
“I can quite comfortably say it’s been three years, and might even be longer, that industry, associations, businesses and certainly the software companies have been heavily involved in collaborating and co-designing with the ATO about what this could look like,” he said.
What are the reporting requirements?
“The default position of Single Touch Payroll is that you report to the ATO at the same time that you pay your employees,” Mr Addison explained.
“I am certainly positioning, and will continue to position, that if you are using a computerised payroll system — to my knowledge most of the computerised payroll systems are now STP-enabled — when you push the button to say ‘generate the payslip’ or ‘generate the bank file’, at the same time you can generate the message that goes to the tax office which will meet your Single Touch Payroll obligation.
“Really, it’s an extra click of a button. And from an employer’s point of view, if they are confident enough in the data to pay the employee, then they should be confident enough in the data to send it to the ATO.”
Another concern has been the frequency of reporting requirements, particularly among micro employers. While most employers will be required to lodge the report at the same time they pay their employees, whatever frequency that is, there is some relaxing of this in place for microbusinesses.
As Mr Addison noted, many microbusinesses, which only employ the business owner and perhaps members of their immediate family, often only pay out wages quarterly.
He explained that these employers will be able to report STP on a quarterly basis on a quarterly business, in line with their current payroll cycle.
“The quarterly reporting comes into if their internet disconnected, or if they are what is called closely held entities, i.e. the only thing you employ is yourself, or you only employ family members. They will be able to enter a quarterly reporting regime, and that means they can work in conjunction with their bookkeeper or their accountant about what are we going to set payroll at for the quarter for our family members,” Mr Addison said.
“There is another quarterly spot there that has officially been put in for a two-year transition period that allows the micro employer — the one to four employees — to work with Single Touch Payroll reporting at the same time as they do their BAS.”
No need to re-report honest mistakes
A cause of concern among some business owners has been what happens if they make an honest mistake in their reporting.
According to Mr Addison, there will be no need to go back and correct past reports to the ATO.
“The Single Touch Payroll reporting has a correction framework, and what that correction frameworks says is, if I as an employer find out that I made a mistake last pay, I don’t have to go back and change the report to the tax office,” he said.
“What I do is I change it in my natural business system, my payroll system, I correct it there, and then when I pay them next week, the corrected data — the year-to-date data — will be sent to the tax office.
“Again, we’ve designed a system here that is following what an employer would normally do: I made a mistake, I fix it in my payroll, now I’m going to pay my employee again [next pay cycle], and when I pay them, the new set of year-to-date data goes through.”
Why is STP even needed?
“What the regulator has been asked to do by government is to do a better job of monitoring whether an employer is complying or not, because there is enough evidence of non-compliant employers,” Mr Addison explained.
“There is a whole vision here about looking after the superannuation of Australians, and the major contributor of superannuation into super funds is the employer’s obligation to pay it, and there is enough evidence that some employers don’t do a good job of meeting the[se] superannuation entitlements, and there is no monitoring ability.
“What Single Touch Payroll does is give the regulator a better ability to see what’s going on with super, and is that employer meeting their obligations.”
As well as an employee protection mechanism, he said that STP reporting will also create a “level playing field” for employers around employee pay and super.
“I might be sitting in my shop and I’m trying to run my business and I’m being compliant — I’m paying wages, I’m paying the super entitlements for my staff — and down the road they are undercutting my prices because they’re not compliant, they’re not paying their 9.5 per cent super, so they are able to charge less on their product,” he said.
Such monitoring, according to Mr Addison, will help to stamp out this unfair competitive advantage.
Will STP ultimately help businesses to remain compliant with pay laws?
When asked whether STP reporting will ultimately help businesses to remain complaint with wage laws (and avoid run-ins with the Fair Work Ombudsman over underpayments), Mr Addison gave a two-part response.
“My quick answer is eventually; my short answer is that every business is that little bit different,” he said.
“I sit on a consultation group that is helping the ATO work out what they are seeing and what they should do about what they are seeing.
“So when we talk about compliance, in the first era, most of that compliance checking will be about superannuation obligations of the employer, if the employer is accruing the right entitlements for the employee, and then aligning that with the payment data that the super funds are reporting, they will be able to do some matching.”
Mr Addison said that the second aspect of compliance will be PAYG withholding. Once both parts are up and running, and with improved analytics in place, the ATO will then be better placed to check that the correct rates of pay and super are being made.
“But one of my messages — and I’m going to sound like a sales pitch here — the ATO is looking at the data, they are talking to people about ‘hey, we’re seeing this, should we be concerned about it?’ and we’re working with them to help them understand,” he said.
“What they’re doing at the moment with that data is they are doing what I call soft-touch contact with employers, to go ‘hey, we’re seeing this, can you explain it to us?’. So they’re not saying ‘you’re wrong’; they’re saying ‘we the ATO want to understand exactly why we’re seeing what we’re seeing’.”
Will the ATO turn this into a pull system where they are extracting other data, such as sales figures, to check tax compliance?
One My Business reader suggested that STP marks the first steps towards “live monitoring” of all business transactions by the ATO.
“At the moment, it is a push system. I process a payroll and push the information to the ATO. How long before that turns into a pull system?” asked the reader on a story about the introduction of a three-month leeway on STP compliance for small businesses.
“With everyone online, how long before the ATO thinks it was such a good idea, we should start to pull sales and expense figures, too. Taken further, why don’t we just use directly linked ATO accounting software. It’s coming.
“Think me paranoid or a visionary, but if you extrapolate where this is going, in 10 or 15 years, each and every business accounting system will be directly linked to the ATO with all transactions monitored on a live basis.”
Responding to the comment, Mr Addison said that he is not aware of any such ideas being held by the tax office or other stakeholders.
“Not as part of the Single Touch Payroll reporting framework. There is no discussion I’m involved in that talk about sales transaction by sales transaction reporting to the tax office,” he said.
“If you look at the Black Economy Taskforce work and the extension of the taxable payments reporting system — that’s where on an annual basis, you report how much did you pay your contractors, in certain industries — that is the closest we are getting to the ATO monitoring the revenue levels.
“And if you look at some of the published data from the ATO about the taxable payments reporting system bringing more people back into the tax system and getting them more compliant, it’s having a positive benefit.”