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April 15, 2020

Single Touch Payroll and the Obligations of New Businesses

Hard to believe that single touch payroll is such a young innovation, with businesses previously tasked with managing a more complex payroll process that hamstrung other facets of the business. Now as we enter the 2020s, single touch payroll is a key contributor to frictionless finance responsibilities, but there still appears to be some businesses that have not yet complied or fail to see the benefits. Let’s review what single touch payroll is, why it was introduced and what the obligations are of business who are required to comply.

What is single touch payroll?

Introduced in 2018, single touch payroll is a new process of reporting tax and superannuation information to the Australian Tax Office (ATO). Single touch payroll is a responsibility of employers, and it systematically ensures that accuracy is retained and that tax time is no longer an arduous task that can bring stress to an employer and employee.

So how does single touch payroll actually differ from what came before? Single touch payroll means that employers are reporting on tax, wages and superannuation more frequently (weekly, fortnightly or monthly - depending on when your payroll occurs), giving the ATO a clearer snapshot of earnings and outgoings through their mandatory reporting. While it might sound like more steps, it is quite a streamlined process and one that will save employers the time and hassle come tax time. Employers no longer have to issue PAYG summaries or communicate with employees at tax time about the due processes as they can simply log into MyGov and complete their tax declaration whenever they wish.

How is single touch payroll different, and what is required of the employer?

Payroll data is and was always reported to the ATO, single touch payroll has simply made this more manageable by reporting as each payroll is issued and not once a financial year. This means that employers no longer need to dig up information about past employers at tax time who may have worked for a period during that financial year, as everything is settled as its paid.

Another way single touch payroll is different is the software that is required to complete and comply with this process. The introduction of single touch payroll meant that some employers needed to upgrade their existing software to cater to this regular reporting. Other businesses found that their existing software was capable of managing these new requirements, but have eventually migrated to a more responsive system that can make single touch payroll as simple as it was designed to be. There are a number of payroll software providers in the market, and employers are encouraged to test these out and even see if they can deploy the same software for other business functions.

Requirements for businesses of all sizes

The ATO has been careful to not prescribe a process that will hinder some businesses, which is why there are different requirements for businesses of varying sizes. Employers with more than 19 employees had to migrate immediately to single touch payroll and the accompanying software that can allow for such reporting, whereas employers with 19 or fewer employers had a longer grace period to make the gradual change over a 12-18 month period. Accommodating even further, the ATO has allowed employers with four or fewer employers to comply with single touch payroll by subscribing to an affordable model (around $10/month) where they can report wages, tax and superannuation of their staff easily and regularly. There is also an option to report accordingly, although employers should seek counsel from the ATO before assuming they qualify for this.

If your business includes a mix of employees and contractors, you may wish to report these wages but that is voluntary. For examples, if you report a payment and withholding to a contractor, you must provide the contractors ABN (Australian Business Number) but their TFN (Tax File Number) does not need to be omitted in reporting and employers can apply the TFN exemption code. Employers should only consider this if their contractor does regular work for the business (like a social media consultant working weekly on the account). In the event that an employee becomes a contractor in the same financial year, employers can use the same unique payroll ID for the individual.

Single touch payroll might be a complex idea to wrap your head around if you have been conducting payroll in the traditional format for decades prior. Single touch payroll is designed to alleviate responsibility and provide seamless access to data for employees, and reporting for employers.

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