Businesses that are exempt from reporting STP, who have chosen to take advantage of that exemption, must generate payment summaries for their employees and lodge a payment summary annual report (PSAR) with the ATO. We have compiled this FAQ based on commonly asked questions around the payment summary process and the interaction with STP for businesses that have a combination of closely held employees (not being reported via STP) and non-closely held employees (must be reported via STP). We will keep adding to this so make sure you refer here first if you have a question!
This should be read in conjunction with the EOFY Payment Summary Guide.
Section 1: Housekeeping
It is best practice to ensure all business and employee settings/earnings are correct before commencing the payment summary process. This will ensure that you are not stuck fixing any validation issues, your employees' payment summaries are reporting the correct figures and you're not having to amend payment summaries once they have been published and lodged.
So what should you check? We recommend the following:
- Employee Details – such as email address, postal address, tax file number.
- Pay Categories – is the correct 'Payment Classification' setting assigned to each pay category?
- Business Settings – have you entered all your details in 'Payroll Settings' > 'Business Settings' > 'ATO Settings'? If you have more than one employing entity are all the details of the entity set up correctly via 'Payroll Settings' > 'Business Settings' > 'Employing Entities'?
- Deduction Categories – do your employees have any union/professional association fees or workplace giving deductions? If so, has the correct 'Payment Classification' setting been assigned to those deductions?
- Reportable Employer Super Contributions – are some of your employees salary sacrificing super? If so, make sure they have been processed correctly in the pay run so the amounts are reported correctly in the employee's payment summary.
- Reportable Fringe Benefits – is the employing entity exempt from fringe benefits tax under section 57A of the Fringe Benefits Tax Assessment Act 1986? If so, make sure your settings are configured accordingly so that any employee reportable fringe benefits amounts are recorded correctly on their payment summary.
Further details on what to audit and how to fix issues are detailed in the 'Preparation' section of the EOFY Guide.
Finalise pay runs
Put simply, if a pay run is not finalised it will not be included in the YTD payroll figures displayed in payment summaries and the PSAR. If you generate payment summaries and lodge the PSAR before finalising all pay runs for the 2019/2020 FY you will then need to issue employees with amended payment summaries and re-lodge the PSAR so that the correct figures are reported to the ATO. This includes normal pay runs and ad hoc pay runs - again if it relates to an employe's pay or is an adjustment to an employee's pay, it must be finalised in order to be reported to the ATO.
It will be quite obvious to you if there are unfinalised pay runs for the 2019/2020 FY. When you navigate to the 'Payment Summaries' screen and select the correct financial year and see the following warning message below, this indicates unfinalised pay runs exist:
Will JobKeeper payments be listed separately on payment summaries? Do I have to do anything additional in my usual end of financial year process?
Be aware that due to ATO requirements, JobKeeper payments are reported separately as allowances and should appear in STP events under the allowances column.
Provided you have set up JobKeeper payments correctly, they will be reported and appear correctly. If you are using the system-generated JobKeeper pay categories for Start, Finish and Top-up payments, the correct STP classifications have already been applied. See Processing JobKeeper Payments in the pay run for more details.
There are no further steps required for end of financial year with respect to JobKeeper payments.
Section 2: Payment Summaries vs Finalisation Event
There may be some uncertainty around whether payment summaries should be generated if some "dabbling" in lodging STP events has occurred during the financial year. If you have never reported an STP event this financial year, then you can skip this whole section and proceed to Section 3. Otherwise please review to ensure you are undertaking the correct EOFY process.
The general rule here is if you have lodged STP events, even for closely held employees, you MUST lodge a finalisation event and MUST NOT lodge payment summaries. The only exemptions to this rule are detailed here.
N.B. Businesses that have reported STP events, whether successful or partially successful, will notice that the payment summary generation function is disabled. This is intentional and purely to ensure users do not lodge payment summaries AND lodge STP events. The repercussion of this is not easy to solve and requires ATO intervention, so better to be on the safe side! If you believe you meet any of the exemptions provided in the above article link then email payroll support.
Below are some specific scenarios asked by users that may be relevant to you:
We started reporting STP in the middle of the financial year. Does that mean we need to generate payment summaries for the time prior to that?
Short answer is no. Once you start reporting successfully through STP, there's no going back! You will need to complete a finalisation event as your EOFY process. Additionally, you must NOT generate payment summaries/payment summary annual report (PSAR) as payroll data will be overstated to the ATO. In fact, the system will not allow you to generate payment summaries as it recognises that STP events have been lodged.
Also, don't forget that STP events are reporting YTD payroll data. So if, for example, a business only started reporting STP from March (but was processing pays from the start of the financial year), the first event will have already included the YTD payroll data for each employee contained within the event. This means that all payroll data from 1 July for the employee was captured in the first event lodged. What you need to be aware of though is that pay events only include employees who were paid in the pay run you lodged.
There may be some employees paid from the start of the financial year who have not been paid since the business started lodging via STP. To ensure you capture all employee data, you should create and lodge an update event prior to completing the finalisation event. The update event will capture ALL employees paid in the financial year (who have not previously been marked as 'is final' in an event). Once successfully completed, you will then be in a position to process your finalisation event.
We only started reporting STP mid year and had previously processed termination pays. Do we have to process payment summaries for the terminated employees?
Short answer is, it depends.
Are any of the terminated employees classified and marked as closely held employees?
If the answer is YES, then you can generate payment summaries for the closely held employees but only the closely held employees. N.B. If, at any time during the financial year, the closely held employee was included in an STP event, the system will not allow you to generate a payment summary for that employee. Rather you will need to complete a finalisation event. Saying that, you can choose to report the closely held employees via STP. You just need to make sure the 'Closely held employee' checkbox in the employee's 'Pay Run Settings' > 'Pay Run Defaults' screen is unticked and they will then appear in the STP finalisation event.
If the answer is NO, then you will not be able to generate payment summaries for these employees. Rather, you will need to complete an STP finalisation event for these employees. In fact, the terminated employees may already be reported in STP events lodged with the ATO, especially if you have lodged any update events. You can double check this by downloading an 'Excel (YTD)' export from any STP event already lodged. If the terminated employee appears in the export, this acts as confirmation they have been reported via STP during the year and so should be included in a finalisation event. If the export shows they have been marked as 'is final' then the EOFY process has already been completed for these employees.
We have NOT been reporting via STP during the financial year but want to process an STP finalisation event rather than generate payment summaries. Is this possible?
Short answer is, it depends.
If you are a WPN holder and not using a registered agent for ATO reporting, you must generate payment summaries. The reason for this is that the ATO does not support electronic lodgement for WPN holders.
For all other business types, then yes, you can process an STP finalisation event instead of generating payment summaries. If the business has any closely held employees, you must first ensure the 'Closely held employee' checkbox in each closely held employee's Pay Run Settings' > 'Pay Run Defaults' screen is unticked.
In order to lodge an STP event you must be enabled for electronic lodgement. If you have not done this, follow these instructions and ensure you have notified the ATO of the software id pertaining to your business. You must then lodge a pay event prior to lodging a finalisation event. This is an ATO requirement and if you do not lodge a pay event first then your finalisation event lodgement will fail.
To lodge a pay event, simply open the last pay run finalised for the financial year and click on 'Lodge Pay Run with ATO'. If you have multiple pay schedules set up in the business, ensure you lodge a pay run per pay schedule. You will then be able to commence the finalisation process. Refer to our End of Year Guide with STP for detailed instructions.
Once you commence the STP finalisation event process be aware that you will not be able to generate payment summaries for your employees.
We changed payroll systems during the financial year and have not added previously terminated employees (from the prior payroll system) in this payroll system. How do we deal with the terminated employees not entered in this payroll system?
So the first thing that needs to be considered here is whether the business was reporting via STP in the previous payroll system.
Scenario 1: Reporting through STP was occurring in previous payroll system
If this is the case you need to ensure the employees' final STP event in the previous payroll system included these employees and were marked as 'is final'. This acts as an indicator to the ATO that there are no further payments to be made to that employee for the remainder of the financial year. So if that was done then there is nothing further required for you to do with these employees as their finalisation event occurred in the previous payroll system. If this has not been done, then lodge an update event in the previous payroll system for those terminated employees and mark as 'is final'. Also, please note that as you have been reporting through STP in the previous payroll system you must not add the terminated employees in this payroll system and include opening balances as this will duplicate the reporting of payroll data for the terminated employees. You must finalise the process for those terminated employees in the previous payroll system.
If you cannot access the previous payroll system to complete a finalisation event, then you can transfer the terminated employees to this system and complete a finalisation event. It is essential you thoroughly review our support article on transitioning data between payroll systems to ensure the business and employee settings are configured correctly otherwise you will over report data to the ATO!
Scenario 2: Reporting through STP was NOT occurring in previous payroll system
If this is the case and you only commenced STP reporting in this payroll system then there are a few ways to deal with this:
- Option 1: If you are an STP exempt business, keep the terminated employee data in the previous payroll system and generate payment summaries/PSAR for such employees. If you are not exempt from STP you must report the employees via STP; or
- Option 2: If you are not a WPN holder, add terminated employee data in this payroll system and enter their YTD data via the Opening Balances functionality so that they are then included in the finalisation event;
- Option 3: If you are a WPN holder not reporting via STP, add terminated employee data in this payroll system and enter their YTD data via the Opening Balances functionality. You will then be able to generate payment summaries/PSAR for the terminated employees.
We started reporting STP for closely held employees and then stopped. Can we generate payment summaries for these closely held employees?
Short answer is no. As you started reporting successfully via STP during the financial year, you now need to see it through to the end and complete an STP finalisation event. Additionally, the system will not allow you to generate payment summaries as it recognises that STP events have been lodged. Refer to our End of Year Guide with STP for instructions on how to complete the finalisation process.
Changing payroll systems during the financial year... in general
There are so many variables with this topic and different scenarios that need to be considered here. As such, if your exact scenario has not been discussed above, please refer to this article to get a better understanding and resolution to your specific situation.
Section 3: Publishing Payment Summaries
The instructions for publishing payment summaries can be accessed here. Below are some specific scenarios asked by users that may be relevant to you.
Some of our employees do not have an email address. How do we issue payment summaries to them?
In this instance, you will need to issue the payment summary to them in person or alternatively post it to them.
In the 'Payment Summaries' screen, you can print the payment summaries once they have been published. To do this in bulk click on the 'PDF' button (top menu). This will download all the payment summaries and employment termination payment summaries in PDF so you can then print them. Alternatively, if you only want to print a payment summary for a specific employee, click on 'Actions' > 'Download' (located to the right of the employee's payment summary line):
The system will not allow me to publish an employee's payment summary. Why, and how do I fix this?
The only scenario where you will be unable to publish a payment summary is when validation warnings have not been fixed. We have enforced this practice of not being able to publish payment summaries for these employees in order to avoid failed lodgements with the ATO. You will know there is a validation error for an employee in 2 instances (only after you have click on 'Show Payment Summaries'):
- A '!' icon will be displayed in the 'Status' column for that employee; and
- A 'Warnings' tab will appear on the 'Payment Summaries' screen.
Clicking on the 'Warnings' tab will show you the exact issue for the employee:
Once the issue is rectified you can click on 'Show Payment Summaries' again to refresh the data and then publish the payment summary.
Section 4: Enabling Single Touch Payroll (STP)
This section is optional and should be read by businesses who, although exempt from reporting STP in the 2020/2021 financial year, have decided to take the plunge and start reporting in the new financial year.
N.B. Unfortunately for WPN holders, the ATO still won't be supporting electronic lodgement for you. However, if you intend on using a registered tax/BAS agent to undertake your reporting obligations this is allowed by the ATO and so this section will also apply to you.
We have introduced a wizard to help guide you through the process of enabling STP for your business. Instructions on how this works can be found here.
Ensure your connection to the ATO is set up correctly
Part of the process of enabling STP involves connecting your payroll software with the ATO. Simply completing the wizard does not activate that connection. Rather, you must complete steps outside of the wizard to ensure the connection is setup correctly. Detailed instructions and options on how to connect can be found here.
Ensure allowances are set up correctly for STP
The introduction of STP has brought about a reclassification of allowances. As such, once you have completed generating the payment summaries and lodged the PSAR and before you commence reporting through STP you should ensure that all allowance related pay categories have been assigned the correct 'Payment Classification'. Detailed instructions on classifying allowances can be found here.
Should we register STP now or after payment summaries are lodged?
Because there are restrictions placed in the system on who can generate payment summaries, we strongly suggest waiting till you have completed the payment summary process for the 2019/2020 financial year before starting the STP process.
The ATO do provide deadlines for reporting STP, however the fact your business is exempt in the first place, would make you exempt from the deadline as well. The ATO stipulates the following:
"You are required to report a pay event to the ATO on or before the pay day. The pay day is either the payment date stipulated in the electronic transaction to your financial institution or, if you did not stipulate a date for payment, the date you intend to make the payment into your employee's bank account."
N.B. For businesses already reporting via STP for their non-closely held employees only, you will need to ensure that the 'Closely held employee' checkbox in each closely held employee's 'Pay Run Settings' > 'Pay Run Defaults' screen is unticked in order for these employees to be included in STP events. In this instance, you MUST hold off on doing this until you have completed the payment summary process for the 2019/2020 financial year. You can continue reporting your non-closely held employees as normal and then, once you've completed the payment summary process, start adding the exempt employees into the STP events.
If you have any feedback or questions please contact us via email@example.com.