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Single Touch Payroll (STP)
PHASE TWO

This page is a 5 minute summary of the Xero blog here. All business employers will soon be required to transition to STP PHASE 2 as part of the STP expansion.

When will the changes be rolled out in Xero?

Xero has been granted a deferral on the start date of the STP Phase 2 for our payroll software, and applies to all new and existing customers.

This means that all customers reporting STP using Xero Payroll have until 31 December 2022 to report their first STP Phase 2 pay run, instead of the 1 January 2022 ATO deadline.

This gives our Xero Payroll customers more time to ensure that payroll records are STP Phase 2 compliant.

The changes are being rolled out in stages to give you more time to adjust and get familiar with STP Phase 2. Here’s when you can expect to see them go live and what will be involved:

Stage one: The first stage became available within Xero late April via a limited release before being rolled out over the following months. This will include updates to the way new employee records are set up in payroll.
Stage two: The second stage will begin rolling out within Xero in the new financial year. This will extend the set up process to enable the transition of existing employee payroll records to STP Phase 2 compliance.
Stage three: The final stage will be available in the second half of this year. It will see the new pay items and leave from STP Phase 2 finalised within Xero, with product support to review existing pay items and leave that may need to be changed to those stipulated by STP Phase 2.

Will this impact how I report to the ATO right now OR the finalisation of 2022FY?

No, Xero payroll customers will continue to report STP Phase 1 for the time being. The rollout of STP Phase 2 pay items and updates to the employee setup process in Xero Payroll will not affect reporting or any YTD values sent to the ATO.

What changes are coming as part of stage one? And what does it mean for how I add new employees?

With stage one, the way you add new employees into Xero will be a little different. To be STP Phase 2 compliant, every new employee set up in payroll will need to have more detail on the components that make up their pay. These include:

Employment type – whether the individual is an employee or contractor.

Income type – elements of how the individual is paid. These include:

Salary and wages (this tends to be most employees, depending on your business)
Closely held payee
Working holiday maker
Non-employee (contractor)
Labour hire (contractor from a labour hire agency)

Employment basis – whether the individual is full-time, part-time or casual.

Tax scale – you will need to nominate the appropriate PAYG tax scale category that determines how much tax should be withheld for an employee. These tax scales include:

Regular
Actors, variety artists and other entertainers
Horticulturalists and shearers
Seniors and pensioners
Working Holiday Maker

In this video, Xero shows you how to add an employee with the new Single Touch Payroll Phase 2 employee set up:

You mentioned closely held payees – what are those again?

Good question. Closely held payees (otherwise known as a closely held employees) are individuals 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.

With STP Phase 2, you’ll have to indicate whether an employee is closely held or one of the other income types. This means that if you’ve just hired your child or other relative, like a nephew, for a part-time job, you’ll have to select them as closely held when setting them up in Xero once stage one kicks in.

What is a limited release and how do I opt in?

STP Phase 2 is important and we want to get it right. Which is why we’re starting with a limited release for stage one and allowing time to test and refine the payroll experience. This means a limited number of Xero customers will be able to sign up and use the new STP Phase 2 employee setup process before we roll it out more broadly. Why? All so that we can make the entire experience better for everyone involved.

This is an opt-in process – meaning you have to sign up to access it. Head to the employee section of our STP Phase 2 Information hub and follow the instructions and it will let you know if you’re eligible.

What can I do to be prepared for STP Phase 2?

You can take a look at the Xero guide to STP Phase 2 and this handy checklist.

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