The push towards digital
The deadline to adopt single touch payroll is fast approaching, providing an opportunity for accountants to help their clients reap the benefits of digital connectivity.
The start of the new financial year may bring some challenging times for Australia’s micro businesses.
Earlier this year, the government passed a bill that makes it mandatory for all employers of any size to adopt single touch payroll (STP), which is a way of sending employee pay information to the Australian Taxation Office through payroll or accounting software each time they pay their employees.
Before the bill, STP reporting was only required from businesses with 20 or more staff. With small entities now expected to comply, accountants are challenged to find ways to help their micro clients transition, as many are reluctant to take up payroll software they may not be able to afford.
“Given that a lot of smaller, micro employers aren’t on a digital platform, [STP] is quite a significant imposition,” says IPA general manager of technical policy Tony Greco.
“The accountant has to play a key role here and say, ‘OK, this is going to be an ongoing reporting requirement. How can we best adapt to this new requirement?’”
Because of this, the ATO had put out a market tender request last year asking for companies to come forward with simple, low-cost STP solutions that are intended to best suit those businesses with four or fewer employees. The solutions should also cost less than $10 a month, take only a few minutes to complete each pay period, and not require the employer to maintain the software.
The ATO received proposals from 31 companies.
While the new STP reporting requirement can be a burden for some, it can also be an opportunity for accountants to teach their clients about new technology that might lead to better business outcomes. “The accountant needs to do a cost benefit analysis. What if this reporting system gave you better information and drives the business better? It will pay for itself. For some people, this might be a good point in their business life cycle to consider the bigger picture,” Mr Greco says.
“Even though it’s one additional reporting requirement, I would look it at a little bit more holistically and ask, could this be the tipping point for some businesses to go the next step?”
The Treasury Laws Amendment (2018 Measures No.4) Bill 2018, which was passed in February 2019, amends taxation legislation to extend STP reporting to all employers. This means businesses must send their payroll information to the ATO each pay cycle, whether it be weekly, fortnightly or monthly.
Details to be reported include payments such as salaries and wages, pay-as-you-go (PAYG) withholding and superannuation information. Employers were previously required to submit this data once a year.
But in order to boost transparency and combat non-compliance, more touch points were needed. This is especially important to ensure employers are paying their employees their superannuation.
“[STP helps] make sure the right amount of tax has been taken out of someone’s pay, and make sure that the employer is adhering to the superannuation guarantee (SG). That’s a huge problem in Australia. There’s a lot of non-compliance. People aren’t getting their entitlement, which is 9.5 per cent,” Mr Greco says.
“It’s very hard for the regulator to keep on top of non-complying employers. This is one step further towards improving the transparency around information. The system at the moment relies on someone picking up the phone and saying, ‘Hey. I don’t believe my employer is keeping up with my SG obligations’.
“This is one step closer. It still doesn’t mean everyone gets their entitlement. It’s not going to fix everything, but it makes it easier for the regulator to catch non-complying employers by improving transparency.”
Right now, the majority of STP reporting is done through payroll, accounting and business management software. Most software providers are offering STP-enabled products, the ATO says. The deadline for all businesses to adopt STP reporting is 1 July 2019, although this date is flexible, the Tax Office says.
“We understand the move to real-time digital reporting may be a big change for employers, especially small business, so the ATO will adopt a supportive, tailored approach to help them undertake this change,” says ATO assistant commissioner and single touch payroll lead John Shepherd.
“Our approach to extending single touch payroll from 1 July will be flexible, reasonable and pragmatic.
“Our immediate focus will be on helping micro employers transition to STP rather than penalising non-compliance. Remember, if you make a mistake, you will be able to make corrections.
“The first year is a transition and penalties will generally not apply.”
While the soft start is appropriate, Mr Greco worries this might delay employers from getting started.
“[The ATO] is telling us that it could be quite a long time before they start to enforce the law requirement. We’re comforted by that. But at the same time, it’s not going to go away,” he says. “At some point, they’re going to have to think about how they can address this new reporting requirement.”
A new wave of solutions
While there are many upsides to STP, many fear it will bring unnecessary costs to micro employers.
Many of the existing software options today are simply not built for entities with four or fewer employees. New technology tends to come with extra costs in administration and time, which is not always worth it.
“Digital might be the saviour for some, but the issue is more the cost of having the expertise to run it and the time. If the business owner doesn’t have the time, they’re going to have to get someone to drive it. If you’re looking at the small business spectrum, they are already struggling with time,” Mr Greco says.
“We understand that small businesses are already overwhelmed with the existing obligations. We also understand the policy intent. That’s why we lobby the government and say, ‘Look, you better make this as easy as possible. Go out and look at all options, including non-digital’.
“We tell the regulator that there are cheap options, but if the small business has to engage an intermediary, then that’s going to cost.”
This is why the ATO says it has committed additional resources towards helping small entities transition to STP.
Part of this includes working with software providers on developing easy and low-cost solutions. Some of these companies include Reckon, Xero, MYOB, PwC, SRI Enterprise, Intuit and Easy Payslip.
The IPA has partnered with Reckon to establish white label product IPA Books+, which provides a low cost STP solution. IPA Books+ starts at a low cost of $5/month to monitor your cash book, view budgets, process payments, GST and produce over 45 types of reports. There’s a raft of other features, including payroll for $3 per month providing the ability to manage pay runs, leave, super and STP for an unlimited number of employees.
“We understand that many small businesses and other small employers do not currently use commercial payroll software and they will not be required to purchase such software to report under STP. The ATO is working with software providers to develop low and no-cost reporting solutions including simple payroll solutions, portals and mobile apps,” Mr Shepherd says.
“We are committed to supporting employers’ transition into single touch payroll reporting and we have been provided with additional resources to help small business transition into the new system. Our priority will be to ensure all employers are able to make the transition, including supporting those who need more time or are struggling with the requirements.”
With a new range of digital options on the horizon, an opportunity for accountants has emerged.
Finding an ideal way to adopt STP will be the biggest challenge for micro employers, as there is no one-size-fits-all approach, Mr Greco says. Accountants will play a huge role in helping determine the client’s best option.
He adds that for many companies, STP might be the tipping point for going completely digital.
“Back in 2000, the GST imposed fairly substantial reporting obligations on entities. A lot of small businesses decided to go digital at that point. This is probably another example, a fork in the road where it might push them to say, ‘OK. This might be another reason why we might consider a digital platform’. Some 30 per cent of small businesses are still not on a digital platform,” Mr Greco says.
“Accountants have to help the client in the best way possible. That’s the job of a lot of our members.”
According to Mr Shepherd, there are several ways accountants can help their clients with STP. The first way is by encouraging those with payroll software to speak with their provider.
“Your clients should find out how their payroll software provider will offer STP reporting. This may be through an update to their existing software or an additional service,” he says.
“They should also remember to find out what support the payroll software provider will offer to their clients to transition to STP and subscribe to their payroll software provider’s communications.”
Moreover, accountants should encourage their clients to review their business processes, Mr Shepherd says. Accountants should check that their clients know about STP and ensure that they are paying their employees correctly and calculating their employees’ super entitlements properly.
“They should ensure that they are addressing overpayments correctly and maintaining accurate information, including names, addresses and date of birth records,” he says.
Mr Greco says accountants can also assist their clients considering taking up new software. However, it’s important to remember that there is no one-size-fits-all solution, he adds.
“This is dependent on each client. They are all different and they all have different ways that they maintain their records. Some digital, some non-digital. Some cash, some credit,” Mr Greco says.
“What we’ve been telling our members is go and have a look at what is in existence and look at streamline options for coming into this regime. For some, it may be worthwhile considering a digital payroll option. Our agreement with Reckon is definitely a low-cost option that’s available to all our members. So, digital is obviously an option.
“That’s an individual decision and the accountant should be well-versed in facilitating that transition.”