This article is relevant for employers that have been reporting to the ATO for Single Touch Payroll (STP) during this financial year, as well as all businesses not exempt from STP reporting. For the 2020/21 financial year, STP reporting exemptions only apply to:
- WPN holders (until 1st July 2022); or
- Closely held employees of businesses with 19 or less employees (but only for the closely held employees); or
- Businesses that have been granted a deferral or special exemption from the ATO.
This article will guide you through the process of wrapping up the 2020/2021 financial year, lodging the finalisation declaration and getting ready for the 2021/2022 financial year. We recommend you also refer to the EOFY STP FAQ in case you have any questions along the way.
This article is broken down into the different phases of year end processing, as follows:
- Preparation: This covers off the recommended checks and reconciliations that should be completed to ensure all business and employee details are correct prior to lodging the finalisation event(s) to the ATO.
- Lodging finalisation event: This includes sending notifications to employees and how to amend any employee earnings already lodged via a finalisation event.
- Preparing for FY 2021/2022: A few notes on updates being introduced in the new financial year.
These steps should be taken prior to lodging your finalisation event:
- Review employee details
- Review FBT settings
- Review pay categories
- Review deduction categories
- Check opening balances
- Audit salary sacrifice super/RESC
- Finalise pay runs
Review employee details
Ensure employee details are up to date. In particular the employee's tax file number, email and postal address. Having an email address on record for an employee will allow you to send a notification email directly from the platform to your employees after you have lodged the finalisation event to notify them that their Income Statement is 'Tax ready'.
Additionally, check that the employee's address is complete and correct as this will trigger a validation and prevent the finalisation event from being lodged unless its fixed. If your business contains a combination of closely held employees and non-closely employees (ie arms length employees), you should take note of those employees who are classified as closely held as you will only be able to generate payment summaries for those employees. If you want to include the closely held employees in the finalisation event, in lieu of generating payment summaries, you will need to unmark them as closely held prior to creating the finalisation event.
A quick way to audit this information is to generate an 'Employee Details Report' and select the following display columns to retrieve the information:
- postal address
- tax file number
- closely held employee
Ensure you also include employees terminated in this financial year when generating the report as they may also be included in the finalisation event.
If you need to update any of the employee details, you can do this individually by navigating to the relevant screen of that employee's record and making the change. Otherwise, you can update in bulk by exporting the employee file, making changes in the spreadsheet and then import the updated file.
Review FBT settings
Is your business exempt from FBT under section 57A of the FBTAA 1986? If so, you should ensure this has been configured as such via the 'ATO Settings' page. By default, this option will be set to 'No' but it is important to review how this has been set up to ensure any reportable fringe benefits amounts are reported correctly in the finalisation event and thereby the employee's Income Statement.
For businesses with multiple employing entities set up, please note that the FBT setting must be configured for each employing entity. This can be done via Payroll Settings > Employing Entities > then, click on the relevant employing entity.
If a business is exempt from FBT under section 57A of the Act, the employee's whole RFBT amount will be reported as tax-free. If the business is not exempt from FBT under section 57A of the Act, the employee's whole RFBT amount will be reported as taxable.
Prior to 16 July 2021 there were an additional 2 sub-settings which separated out the type of organisation and whether or not employees were entitled to a separate cap for salary packaged entertainment benefits. These have both been removed as they do not impact whatsoever how RFB amounts are reported for employees via STP (or payment summaries for that matter) and so were redundant. As a result, the following will also occur:
- Any existing lodged STP events that did not have RFB amounts reported will only have one RFB column (called “RFBA”) displayed in the event;
- If any existing lodged STP events have RFB amounts reported in the ‘RFBA – Entertainment’ or ‘RFBA – Other’ column, the applicable RFB column will remain in the event as will the amounts previously reported, that is, previously entered RFB amounts will not be lost as a result of this change;
- As per new STP events created moving forward there will only be one column for RFBA.
Review pay categories
Review your pay categories to ensure the correct classification is applied. This is configured via the 'Payment Classification' field within the pay category settings (see image below):
Specifically with allowances, we refer you to this article as a guideline on how your allowances should be classified. In the article:
- where the 'Include in gross payment?' column states 'Yes', ensure the 'Payment Classification' is set to 'Default';
- where the 'Include in gross payment?' column states 'No' and the 'Include in allowance tuple?' states 'No', ensure the 'Payment Classification' is set to 'Exclude from Payment Summary (Income Statement)';
- where the 'Include in gross payment?' column states 'No' and the 'Include in allowance tuple?' states 'Yes', refer to the 'STP Field' to see the value stated. This will then determine what 'Payment Classification' is assigned to the allowance based pay category. For eg, if you refer to the second allowance described in Table 5 in the article, the STP Field = Meals, so the payment classification would be 'Allowance (Meals)':
PAYG Exempt pay categories:
A pay category that is set to be PAYG exempt is normally categorised as something other than 'Default' in the Payment Classification field in the pay category settings, eg. Allowance, Lump Sum etc. etc. This is because PAYG Exempt earnings are deemed tax free for a particular reason.
Note, if you select Default in the Payment Classification field for PAYG Exempt earnings then your STP finalisation reconciliation will show a variance equal to the amount paid using this pay category, because those earnings will not be included in the Taxable Earnings total (in the payroll YTD section) but they will be included in the Payroll Gross Earnings total (in the STP YTD section). Information about how to fix this is in our EOFY Reconciliation article - go to "Incorrect pay category payment classification" in the What could cause a positive variance section.
Special note on JobKeeper and JobMaker:
Provided you have set up JobKeeper and JobMaker payments correctly, they will be reported and appear correctly. If you are using the system-generated JobKeeper/JobMaker pay categories, the correct STP classifications have already been applied and no further audit will be required.
Review deduction categories
For any 'Union or Professional Association Fees' or 'Workplace Giving' deductions, be sure to audit the 'Classification' field accordingly so the deduction amounts are itemised separately in the Income Statement:Salary sacrifice super (RESC) deductions are discussed further below.
Check opening balances
If you have migrated to this payroll system from another system during the financial year, it is important that the opening balances are set up correctly. Please refer to our article on Transitioning options available with STP reporting.
If you do need to enter opening balances this article will assist - Setting Employee Opening Balances (Initial Values).
If you created your business in the previous financial year but didn't start processing pay runs until this financial year, it may be necessary to review the 'Initial Financial Year' setting under 'Payroll Settings' > 'Opening Balances' to ensure the correct financial year is configured:
Please note: Do not change the initial financial year to the 2020/21 FY if you have already been processing pay runs in this payroll system for multiple financial years. This setting only relates to users that have migrated to this payroll platform part way in the 2021/21 FY and want to capture all opening balance amounts in the finalisation event.
If there are any opening balances for deductions that should be reported as Reportable Employer Super Contributions (RESC) on the Income Statement, be sure to tick the 'Include on payment summary as RESC' checkbox alongside the deduction category in the employee's 'Opening Balances' screen. If you're using the system 'Salary Sacrifice Super' deduction category, the checkbox will be ticked by default:
Audit salary sacrifice super/RESC
Any RESC, such as salary sacrifice super, that has been processed in the pay runs for this financial year will automatically be included in the finalisation event. This data will be generated from any pre-tax deduction that is paid to a super fund. Any RESC incurred for an employee for this financial year prior to migrating to this payroll system can be set up within the employee's Opening Balances screen.
We strongly suggest you audit all RESC amounts processed in pay runs to ensure you have correctly assigned them to be paid to a super fund. The ramifications of any other allocation (ie other than to the super fund) will result in employee amounts not being reported correctly on their Income Statement and the employee potentially being stuck with a tax liability. To audit RESC amounts, follow these steps:
- Generate a 'Deductions Report' using the date range 'Financial Year' and filter the report by selecting the relevant RESC deduction category;
- Generate a 'Super Contributions Report' using the date range 'Financial Year' and filter the 'Contribution Type' to 'Salary Sacrifice';
- Compare the total $ amounts between both reports. Do they match? If yes, then all is well. If the amounts don't match, review each employee to identify where the difference lies.
- Once the differences are identified, you will need to fix them. The method used to fix this depends on whether the amount comes from the employee's opening balance or from within a pay run.
- Once any corrections required are made, generate the 'Super Contributions Report' again and ensure the total amount matches the 'Deductions Report'.
Fixing RESC amounts incorrectly entered via an Employee's Opening Balance
You will know that the issues stems from the employee's opening balance because the 'Deductions Report' will make reference to 'Opening Balance' in the report:
To rectify this, go to the employee's file and click on 'Employee Settings' > 'Opening Balances' > 'Deductions'. Tick the 'Include on payment summary as RESC' checkbox and then click on 'Save'.
Fixing RESC amounts incorrectly entered via a Pay Run
You will know that the issues stems from the pay run because the 'Deductions Report' will make reference to the actual pay run:
What this looks like in a pay run is as follows:
You can see that the deduction is set up as a manual payment. Rather, it should be set up to be paid to the super fund, for example:
This can be rectified within an update event, using these instructions.
Fixing RESC amounts incorrectly set up via Pay Run Inclusions
If you have had to fix RESC errors, best practice is to ensure it doesn't keep happening on an ongoing basis. As such, you should double check any pay run inclusions set up for salary sacrifice deductions. To do this, generate a Pay Run Inclusions Report to review any ongoing RESC. You will know an employee's pay run inclusion needs fixing if the deduction category is not set to be paid to a super fund.
For example, this RESC deduction set up is incorrect:
This RESC deduction setting is correct:
Instructions on how to configure employee pay run inclusions can be found here.
Finalise Pay Runs
Ensure that all pay runs with a date paid on or before 30 June are finalised, including any adjustment pay runs you had to create. If you lodge your finalisation event and then have to process adjustment pays, you will be required to lodge an amended finalisation event so we strongly suggest you hold off on commencing the finalisation process until you are 100% confident all pays for the financial year have been processed.
Please Note: The date the pay run is PAID determines which financial year that pay run applies to. The finalisation event for the 2020/21 financial year will only include earnings etc from pay runs paid within that financial year. For example:
- Pay run period ending 29/6/2021, PAID 30/6/2021 will be included in the 2020/21 financial year.
- Pay run period ending 29/6/2021, PAID 1/7/2021 will not be included in the 2020/21 financial year.
If you want to include every day worked within the financial year, you might have to split a pay run. For example, a weekly pay run for period ending 2/7/2021, paid 3/7/2021. Create pay run as normal and set the pay period ending 30/6, ensuring you stipulate date paid to be 30th June. You will then need to adjust the employee hours to reflect the hours worked for the 26th - 30th June and then finalise the pay run. Then create another pay run for the period ending 2/7 and adjust the employee hours to reflect the hours worked for the 1st and 2nd. Then finalise the pay run using the normal date paid, being 3/7/2021.
Lodging your finalisation event
Prior to lodging your finalisation event, you should reconcile your financial year data. Refer to the End of Year Reconciliation article for instructions on how to do this.
Once you have completed the steps above, you will be ready to create the end of financial year finalisation event. There are two ways to create a finalisation event. They are:
Either option can be used to fulfil your end of year processing obligations however we have specifically built the STP EOFY Wizard to simplify the process. Additionally, the STP EOFY Wizard provides more functionality over an update event, including:
- Bulk importing RFB amounts for employees;
- Sending notification emails from the platform once the finalisation event has been successfully lodged;
- The option to process an event encompassing all pay schedules, as opposed to creating an event for each individual pay schedule. This functionality is restricted to businesses with less than 2000 active employees; and
- Accessing the amended finalisation event wizard if further finalisation events are required.
You need to make a finalisation declaration by 14 July. However, the ATO has recognised the impacts of COVID-19 on the Australian community and has advised that if you need additional time, you can complete your STP finalisation up until 31 July.
However, it is important that you finalise your employees' data by 14 July if you can, and let your employees know when you have (by sending notifications - an option from the Actions button on the finalisation event), so they can lodge their income tax returns.
PLEASE NOTE: Employees will NOT be able to access their Income Statements from their employee portal or WorkZone. They will only be available via the employee's myGov account.
3. Preparation for FY 2021/2022
There are several considerations for the new financial year.
Reporting Closely Held Employees via STP
From 1 July 2021, businesses are required to report closely held employees (payees) via STP.
A closely held employee (payee) is one who is not 'at arm’s length'. This means they are directly related to the entity from which they receive payments. Examples include:
- family members of a family business;
- directors or shareholders of a company;
- beneficiaries of a trust.
You can choose to report amounts paid to closely held employees on or before each pay day, or you can choose to report this information quarterly. For more information about how to report your closely held payees, refer to this article.
Tax table updates (information only)
The tax tables for the new financial year are automatically loaded (and have been done so already). Please note that any pay runs with a date paid of 1/7/2021 or later will use the FY2021/2022 tax tables automatically.
The Superannuation Guarantee Contribution (SG) percentage will increase to 10%, effective for all pay runs with a date paid on or after 1 July 2021. The system will automatically apply the increase across all businesses, except in the following circumstances:
- A business that does not have the "Automatically update super rates" checkbox ticked (located on the Payroll Settings > Details screen); or
- The "Override" checkbox in the 'Super Rate' column in an employee's Pay Rates screen is ticked; or
- The "Override" checkbox in the 'Super Rate' column of any pay rate template is ticked.
If any of the above scenarios apply to a business and/or employee record and you want the 10% SG rate to automatically calculate on OTE, you must change your settings accordingly so that the "Automatically update super rates" checkbox IS ticked and/or the "Override" checkbox in any employee's Pay Rates screen or pay rate template is NOT ticked.
The maximum quarterly contribution base will increase to $58,920. This increase will automatically apply to all employees who are currently on the default contributions base, from 1/7/2021. Employees that aren't on the default setting will not be updated so you will need to do this manually.
The concessional contributions cap is increasing to $27,500 for all age groups. Any employee who has recurring salary sacrifice deductions paid to a super fund should be reviewed in light of this. Further information on concessional contributions can be found here.
If you want super contributions to be included in the 2020/2021 financial year (for tax reasons), the contributions need to reach the super funds by 30 June 2021.
To meet this deadline and if you're using our automated super payments functionality (ie Beam), your super batch will need to be successfully uploaded/paid by 3.30pm AEST on 23rd June 2021.
If you have pay runs scheduled for payment between 23 and 30 June you can always create these pay runs in advance (on or before the 23 June) using the usual period end and paid dates, finalise the pay run and then create your super batch for the period up to 30 June 2021. This will allow you to include the super amounts before the deadline without the need of paying employees in advance, ie you won't need to upload the ABA file to the bank until the actual scheduled paid date of the pay run.
N.B. If you are using another clearing house to process super payments, ensure you liaise directly with the clearing house to confirm their deadlines.
The Fair Work Commission handed down their annual wage review decision on 16 June 2021. A summary of the decision can be found here. Basically, a 2.5% increase will be applied to the national minimum wage. The new national minimum wage will apply from your first full pay period on or after 1 July 2021. This means if you have a weekly pay period that starts on Mondays, the new rates will apply from Monday 5 July 2021.
This increase will also apply to the modern award wages, but in 3 different stages. Most awards will increase from the first full pay period on or after 1 July 2021. The increase for the General Retail Industry Award [MA000004] will apply from the first full pay period on or after 1 September 2021. The following 21 awards will increase from the first full pay period on or after 1 November 2021:
- Air Pilots Award [MA000046]
- Aircraft Cabin Crew Award [MA000047]
- Airline Operations - Ground Staff Award [MA000048]
- Airport Employees Award [MA000049]
- Alpine Resorts Award [MA000092]
- Amusement, Events and Recreation Award [MA000080]
- Dry Cleaning and Laundry Industry Award [MA000096]
- Fitness Industry Award [MA000094]
- Hair and Beauty Industry Award [MA000005]
- Hospitality Industry (General) Award [MA000009]
- Live Performance Award [MA000081]
- Mannequins and Models Award [MA000117]
- Marine Tourism and Charter Vessels Award [MA000093]
- Nursery Award [MA000033]
- Racing Clubs Events Award [MA000013]
- Racing Industry Ground Maintenance Award [MA000014]
- Registered and Licensed Clubs Award [MA000058]
- Restaurant Industry Award [MA000119]
- Sporting Organisations Award [MA000082]
- Travelling Shows Award [MA000102]
- Wine Industry Award [MA000090]
For customers using our pre-built modern awards, updated versions of these award packages will be published on or before the effective increase date, with the applicable rate changes included.
ATO vehicle allowance rates update
The ATO-approved vehicle allowance rates for 2021-2022 remain unchanged at 72c per kilometre. Please refer to the ATO website for further information.
If your business has set its own vehicle allowance rates, you will need to ensure you are no paying no less than the ATO approved rate.
If you have any questions or feedback please let us know via firstname.lastname@example.org.