Businesses that have been reporting via Single Touch Payroll (STP) in the 2021/22 financial year must complete the year end process via an STP finalisation event.
We have compiled this FAQ, which should be read in conjunction with the STP EOFY Guide, based on commonly asked questions around the finalisation event process. We will keep adding to this so make sure you refer here first if you have a question!
This article is broken down into the different phases of year end processing, as follows:
- Section 1 - STP finalisation event or payment summaries? First things first, you need to be confident that you are using the correct year end method to submit your finalisation declaration to the ATO. Most businesses are reporting via STP however there are a few exemptions still in place for this financial year whereby payment summaries (for those exempt businesses) can be generated. This section clarifies which businesses can lodge payment summaries and which businesses must report via STP to try clear up any confusion around year end reporting methods that may vary for each business. If you have already completed year end processes using STP for prior financial years and/or are confident with the year end reporting method you have chosen, then you can proceed directly to Section 2.
- Section 2 - Preparation: This section will cover off questions around housekeeping tasks that should be performed prior to creating and lodging the STP finalisation event.
- Section 3 - Creating and lodging your finalisation event: This section covers off any questions around lodging finalisation events with the ATO, notifying employees and clarification around how employees can access their income statement.
- Section 4 - Changing payroll systems during the financial year: Due to the complexity and varying specific scenarios around businesses transitioning between payroll systems during the financial year, we have included a separate section of commonly asked questions around this topic.
Section 1: STP finalisation event or payment summaries
The general rule here is if you have lodged STP events during the financial year, you must lodge a finalisation event and cannot lodge payment summaries. In fact, the system will have payment summary generation disabled. This is intentional and purely done so to ensure users do not lodge payment summaries AND lodge STP events, thereby resulting in over reporting employee earnings. The repercussion of this is not easy to solve and requires ATO intervention, so better to be on the safe side!
Any business that has performed at least one successful (or partially successful) STP lodgement for the specified financial year will see the following message on the Reporting > Payment summaries screen:
We only started reporting STP mid-year. Do we still need to process a finalisation event?
Once you commence reporting STP during the financial year, regardless of the time of year you commenced, you will need to lodge a finalisation event as your chosen year end method. 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 throughout the financial year.
Don't forget that STP events are reporting YTD payroll data. For example, if a business only started reporting via STP from February (but was processing pays from the start of the financial year) the first event lodged in February would include all earnings processed from 1 July for each employee in the event. Be aware that pay events only include employees who were paid in the pay run you are lodging.
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 creating the finalisation event. The update event will capture all employees, for the chosen pay schedule, 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 have NOT been reporting through STP during the financial year but want to process a finalisation event rather than a payment summary. Is this possible?
If you are a WPN holder and are 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. Refer to our Payment Summary End of Year Guide for detailed instructions on generating and lodging payment summaries. Otherwise, WPN holders using the services of a registered agent can process an STP finalisation event in lieu of generating payment summaries.
All other businesses can definitely choose to lodge a finalisation event as the chosen year end method in lieu of generating payment summaries.
Prior to creating a finalisation event, each business must complete the following steps to ensure the event is lodged successfully to the ATO:
- If you have not already done so, you will need to enable STP. Pay particular attention to the instructions relating to the ATO integration and ensure you have notified the ATO of the software Id pertaining to your business.
- Once the above is complete, lodge an STP pay event for the last pay run processed in the financial year. If you have multiple pay schedules set up in the business, ensure you lodge a pay event per pay schedule. The reason for this step is that the ATO require a pay event be successfully lodged prior to lodging any finalisation event. If you do not lodge a pay event first then your finalisation event lodgement will fail.
- Once you have successfully lodged the pay event, you can create an STP finalisation event.
Please be aware that once you commence using STP you will not be able to generate payment summaries for your employees.
I have closely held employees. Do I have to lodge a payment summary or can I include them in a finalisation event?
Effective 1st July 2021, you should be reporting all your other employees through STP. One of the two options; 'Report employee on each pay run' or 'Report employee on a quarterly basis', must be selected beneath 'Closely held employee' in the STP Income Types field in each closely held employee's Pay Run Defaults screen. Employees set to the 'Report employee on each pay run' option will be included in subsequent STP events, including pay, update and finalisation events. Once an employee has been included in an STP event, they will need to continue being reported via STP.
Employees set to be reported on a quarterly basis will be finalised by a separate finalisation event. For more information see here.
Are we no longer required by the ATO to keep a record of payment summary details?
Please be aware that all historic payment summary records for employees, ie for all financial years prior to commencing STP reporting, are automatically retained in the system. There are no back-ups required to obtain a copy of this data – it just exists in the platform. You have the ability to continuously access previously published payment summaries and ETP summaries at an employee level via the employee's Payment Summaries screen or at a business level via Reports > ATO Reporting > Payment Summaries.
Additionally, employees are still able to access historic payment summaries via their employee portal and/or WorkZone.
I have employees who still want a printed payment summary. Is it as simple as just printing it out?
Put simply, employees should not be issued payment summaries, even if they beg you for one! They need to be advised rather that they will be provided with an income statement and this will be made available via their myGov account. This is a significant change to what employees are used to so it may be worth communicating with your employees in advance to let them know what the changes are.
I have just discovered after reporting STP for an employee all year that they should actually be classified as closely held. Can I now mark this employee as closely held, update the ATO with a lodgement before finalisation and then process a payment summary for that one employee.
No, you cannot. Closely held employees must be reported via STP from 1st July 2021 using one of the methods outlined earlier.
Section 2: Preparation
It is best practice to ensure all business and employee settings/earnings are correct before commencing the STP finalisation process. This will ensure that you avoid any validation issues and your employees' YTD payment earnings are reported correctly. Refer to the 'Preparation' section of our STP EOFY Guide for detailed suggestions on what should be reviewed.
Below are questions asked by users prior to commencing the finalisation process that may be relevant to you.
What happens if I haven't finalised a pay run? Will it be included?
Put simply, if a pay run is not finalised it will not be reported to the ATO. If you lodge your finalisation event before finalising all pay runs for the 2021/22 FY you will then need to lodge an amended finalisation event so that the correct figures are reported to the ATO. This includes normal pay runs and any ad hoc pay runs - if it relates to an employee's pay or is an adjustment to an employee's pay, it must be finalised in order to be reported to the ATO.
Do all pay events need to be successfully lodged with the ATO before commencing the finalisation process? There are some events that are currently in a failed or submitted status.
Best practice is that all pay events are successfully lodged before lodging subsequent events. Also take note of the ATO's deadlines for reporting STP:
"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."
However, at this stage of the game and for the purpose of lodging the finalisation event, you can still lodge a finalisation event without having all pay runs successfully lodged. This is because the earnings that are reported in the finalisation event are the total YTD amounts processed in all finalised pay runs for the financial year, as opposed to the YTD amounts reported in just successfully lodged STP events.
Do we need to lodge an STP event first before lodging a finalisation event?
Yes. The ATO requires that a pay event is successfully lodged prior to lodging a finalisation event in that financial year. The consequence of not having lodged a pay event first is that the finalisation event lodgement will fail.
Do we need to lodge an update event for STP Phase 2 first before lodging a finalisation event?
Yes, if this was not done earlier in the year, the ATO recommended lodging an Update Event to aid in the transition from STP Phase 1 to Phase 2. This will ensure disaggregated earnings are reported correctly.
One of our monthly pay runs (pay event) has a status of "Failed" but all other pay runs were lodged successfully with the ATO. Will the earnings from the failed pay event be included in the finalisation event?
Yes, they will. So long as pay runs are finalised and regardless of whether they have been lodged successfully with the ATO or not, the earnings will be included as part of the employees' YTD figures reported in the finalisation event.
What has changed with the introduction of STP Phase 2?
The biggest change brought about with the introduction of Phase 2 is the additional reporting requirements of employee and earnings data. The ATO's intent with capturing more information is to streamline employer and employee interactions with other government agencies and reduce the administrative tasks associated with the hiring and termination of employees. The key reporting changes were:
- Disaggregation of gross
- Employment and taxation conditions
- Child support garnishees/deductions
- Income types and country codes
- Lump sum E payments
For more information on STP Phase 2, including what hasn't changed see here.
Section 3: Creating and lodging your finalisation event
The instructions for creating and lodging an STP finalisation event can be accessed here. Below are some specific scenarios asked by users that may be relevant to you.
If an update event has been successfully lodged and all employees marked as 'is final', is this sufficient as a finalisation event or does a finalisation event need to be lodged again via the STP EOFY Wizard?
Lodging an update event with all employees marked as 'is final' definitely meets the requirements of completing a finalisation event. To clarify, the STP EOFY Wizard is not the only way of lodging a finalisation event – we have merely created this feature to provide a simple step-by-step process on how to lodge a finalisation event.
Take note that lodging a finalisation event via an update event will not allow users to send a bulk email notification to employees advising them their income statement is available. Rather, this will need to be communicated to employees outside of the system.
Employees are normally paid on a monthly pay schedule but sometimes they have been paid using an ad hoc pay schedule (for out of process adjustments and/or bonuses). Do we need to process a finalisation event for both the monthly pay schedule and the ad hoc pay schedule?
No. If the employee has the monthly pay schedule assigned, as configured in the employee Pay Run Defaults screen, then any earnings processed within ad hoc pay runs will be included in the finalisation event for the monthly pay schedule.
When creating a finalisation event, you will be required to select a pay schedule. When this is done, the event will include all active employees (that is, employees not marked as 'is final' in prior events) that have the selected pay schedule assigned as their primary pay schedule. Within the finalisation event, the employee's total YTD earnings will include all earnings processed during the financial year, regardless of the pay schedule used to process the payment. When selecting the pay schedule, at the point of creating the finalisation event, you're basically telling the system to include all employees with that pay schedule assigned to that finalisation event.
Before you commence processing finalisation events, we strongly suggest you audit which primary pay schedules have been assigned to your employees to ensure employees are not attached to any ad hoc pay schedules.
We changed from processing a weekly pay schedule to processing a fortnightly pay schedule during the financial year. Does this mean we have to create a finalisation event for both the weekly and fortnight pay schedule?
If the weekly pay schedule is no longer an 'active' pay schedule, you will only need to create a finalisation event for the fortnightly pay schedule. We do strongly recommend though ensuring all employees, including employees terminated in the financial year, have the fortnightly pay schedule assigned to them (via the "Pay Schedule" setting in the employee's Pay Run Defaults screen). This will ensure all active and inactive employees paid in the financial year are picked up in the one finalisation event.
Alternatively, if eligible, you can create a finalisation event for all pay schedules - this will ensure all active employees appear in the finalisation event and you won't have to worry about auditing what pay schedule is attached to what employee. A business is deemed eligible if they have less than 2000 active employees set up.
I am unable to proceed from the 'Confirm payroll data' step. I am being asked to correct all validation warnings before continuing to the next step.
This will happen if there are validation warnings that have not been corrected. We have enforced this practice to avoid failed lodgements with the ATO. When completing the finalisation event process, the payroll earnings, company and employee details will be validated at the 'Confirm payroll data' step. If any validation warnings display at this stage you will be required to resolve the issues before you can proceed any further. Once actioned, return to the 'Confirm payroll data' screen, click on the 'Actions' dropdown and select 'Refresh Data'. All warnings will disappear if they have been actioned correctly.
A list of possible validation warnings and how to rectify them can be found here.
We only started reporting STP mid-year and had previously processed termination pays. Will the terminated employees appear in the finalisation event?
They will appear in the finalisation event only if they have not been included in a prior successfully lodged event and marked as 'is final'. If this has occurred, you will know when you create the finalisation event as a list of employees already finalised in a prior event that are, as a result, not included in the finalisation event will display as follows:
This is ok though! If an employee is marked as 'is final' in a successfully lodged event, you're communicating to the ATO that this is the final payment being made to the employee for that financial year. By doing this you have basically conducted a finalisation event for that employee.
You can do an audit of all terminated employees to check if they have already been included in any STP events lodged with the ATO by downloading the 'Excel YTD' report from the most recent STP event lodged for this financial year. The report can be accessed from the "Download" button within the STP event. If the terminated employee appears in the report, this acts as confirmation they have been reported via an STP event during the financial year and so should be included in a finalisation event. If the report indicates the employee has previously been finalised (this will be the case if the value 'Y' is displayed in the "Is final" column for that employee in the YTD report) this confirms the finalisation declaration process has already occurred and no further action is required for that employee.
We have multiple pay schedules set up in the business. I commenced the finalisation event for one pay schedule. Can I now click on "Save for later" and then start the finalisation event for another pay schedule or do I have to finish the first finalisation event before I can start on another?
You can have multiple finalisation events open at the same time for different pay schedules. That is, you do not have to complete/lodge one finalisation event before you start on another finalisation event for a different pay schedule. N.B however, that you cannot create multiple finalisation events for the same pay schedule. Only one finalisation event per pay schedule can be created. If you then need to make amendments or add RFBT amounts for certain employees, you will need to create an amended finalisation event for that pay schedule.
If the business is eligible to create a finalisation event with the option to include all pay schedules, please note that you will then not be able to create a separate finalisation event for a specific pay schedule. A business is deemed eligible if they have less than 2000 active employees set up.
Are closely held employees included in the finalisation event?
If you have marked an employee as closely held, the reporting setting used for STP income types in the employee's Pay Run Defaults screen will determine whether the employee is included. If you want them to be included, see this article for information on reporting per pay run. Refer to our article on closely held employees for further information.
Once a finalisation event is successfully lodged with the ATO, will the status in the employee's myGov account change to 'Tax ready'?
Yes. As such, if you notice that an employee's pay needs to be adjusted after lodging the finalisation event you must action this immediately and notify the employee so they do not use outdated data to lodge their tax return.
Can I still create an urgent ad hoc pay run after lodging a finalisation event? If yes, how is this done using the STP EOFY Wizard?
Yes, you can. However, bear in mind that the successful finalisation event would have marked the employee's income statement as 'Tax ready' so you must notify the employee immediately that an adjusted pay is required and to hold off on lodging their tax return. If this is not done prior to an amendment taking place and they lodge their tax return there will be implications for the employee.
Once you have finalised the ad hoc pay run, go to 'Reporting' > 'Single Touch Payroll'. From this screen, click on the dropdown arrow to the right of the 'Start Finalisation Process' button and then click on 'Create an amended Finalisation Event':
N.B. This option will only appear once a successful finalisation event has been lodged with the ATO.
From there, you will be directed to enter the applicable pay schedule and then add the effected employees. You can select all employees or just the specific employees affected.
Do I have to complete the finalisation event process before I can start creating pay runs for the 2022/23 financial year?
No. You can start creating pay runs for the new financial year immediately without having commenced the finalisation event process for this financial year.
What is contained in the notification email sent to employees once the finalisation even has been lodged successfully?
Users can choose to send out the system generated notification email once the finalisation event has been successfully lodged. To be clear, this option is only available where the finalisation event has been processed via the 'Start finalisation process' button but not via an update event. To send the notifications from within the successful finalisation event, click on 'Actions' > 'Send Notifications'. The email contains the following text:
"Your income statement for [Employing Entity Name] for the financial year ending June 30, 2022 is now available.
You can access your income statement via ATO online services through your myGov account. If you do not already have a myGov account, it is easy to create. Click here for instructions on how to do this.
To clarify, an income statement is different to a payment summary. We are no longer required to provide you with a payment summary as we have been reporting your payroll data for the financial year through Single Touch Payroll (STP).
Other general information regarding how STP has changed the end of year process can be found here."
This text is fixed and cannot be configured by users.
How can I resend the notification after the finalisation event?
Click on the "Actions" button within the successful finalisation event and select the 'Re-send notifications' option. This will send the notification to all employees again as you cannot re-send a notification to an individual employee.
Can we print the income statements for employees who do not have an email address?
Firstly, to clarify, the notification email sent to employees does not include a copy of their income statement. The email simply advises the employee that their income statement is now available and how they can access it.
Secondly, no payroll system can generate or retain copies of employee income statements as this is currently not catered for by the ATO. Employees can only access their income statement by one of the following ways:
- The employee's myGov account. If the employee lodges their own tax return and cannot create a myGov account, they will need to get in contact with the ATO on 13 28 61.
- If the employee is using a registered agent to lodge their tax return, their registered agent will have access to the employee's income statement.
How are JobMaker payments dealt with in end of financial year STP process? Do I need to take any additional steps when finalising reporting?
Be aware that due to ATO requirements, JobMaker nominations are reported separately as allowances and should appear in STP events under the allowances column.
Provided you have set up JobMaker payments correctly, they will be reported and appear correctly. If you are using the system-generated JobMaker pay categories, 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 JobMaker payments.
How do I report fringe benefits for previously terminated employees?
First thing to check is whether the previously terminated employee is appearing in the finalisation event. You can confirm whether this is the case by searching for the employee in the event (once it has been created) or review the employees listed in the warning about who is not appearing in the event:
If the employee is definitely not in the event, you will firstly need to lodge the finalisation event and then the option to create an amended finalisation event will be made available. Manually add the previously terminated employee to the amended finalisation event so you can enter their RFB amount. Make sure to lodge this event so that RFB is reported for the employee.
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.
How do we record Foreign Tax Paid for our foreign employees?
If your employee/s are linked to the 'foreign employment' STP income type in their Pay Run Defaults page and you are reporting via STP Phase 2 (FY21/22 onwards), a new step titled 'Enter Foreign Tax Paid' will be included in the finalisation wizard. Here you can enter the amount of foreign tax paid for the FEI employee. If no foreign tax is paid (or payable) by the end of financial year then the income should be reported as Salary and Wages. See here for more details: STP: Income types & Phase 2 reporting.
What if I don't know the 'home country' for my Working Holiday Maker, can I still complete the finalisation process?
No. Employees classified as Working Holiday Makers must also be linked to the country of the visa or “home" country of the employee, as per their Visa arrangements. This is recorded in their Tax File Declaration settings and will prompt a Validation Warning if it's not done before the Finalisation Event is created.
We need to manually enter RESC against certain employees before we report the finalisation event. How do we do this?
RESC cannot be manually entered in a finalisation event. Rather, you will need to create a pay run and process the RESC amounts in the pay run. Ensure when finalising the pay run that the date paid is on or before 30 June. Entering RESC in a pay run also ensures employee super is processed correctly (if using our integrated super solution) and reported correctly via the relevant super reports.
As we are now reporting to the ATO using STP Phase 2, will an employee’s income statement report their pre-salary sacrificed amount or post-salary sacrificed amount?
One major change between STP Phase 1 and Phase 2 is how earnings are reported to the ATO. STP Phase 1 required an employee’s post-salary sacrificed earnings (ie taxable income) to be reported whereas Phase 2 requires an employee’s pre-salary sacrificed earnings (ie gross income) to be reported. Additionally, where Phase 1 did not report salary sacrifice amounts, Phase 2 does require employee salary sacrifice amounts to be reported. Further information on the changes can be found in this article.
So, how is this change reflected in an employee’s income statement for this financial year? Ultimately, it is the employee’s post-salary sacrificed earnings/taxable income that is still reported on the income statement. However, all disaggregation of gross components are also reported on the income statement. We refer you to the income statement below as an illustration of what an employee will see on their income statement under the Phase 2 regime:
First thing to note is the income amount reported at the top and bottom of the income statement, being $43,049.99. This amount is calculated by adding all salary and wages components and then deducting any salary sacrifice amounts. This makes it very clear that the YTD amount displayed on the income statement is the employee’s post-salary sacrifice amount, that is their taxable earnings.
The income statement itemises all gross amount components, such as paid leave, overtime, bonus & commissions, as well allowances. But the important thing to note is that it is still the taxable earnings amount that is used to assess the employee’s PAYG withholding liability, which is what was also reported in Phase 1.
Section 4: Changing payroll systems during the financial year
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 below, please refer to this article to get a better understanding and resolution to your specific situation.
We changed payroll systems during the financial year and have not added previously terminated employees (from prior payroll system) in this payroll system. How do we deal with the terminated employees not entered in this payroll system?
The first thing that needs to be considered here is whether the business was reporting through 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 - their finalisation event has occurred. 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.
Scenario 2: Reporting through STP was NOT occurring in a 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: Keep the terminated employee data in the previous payroll system and generate payment summaries/PSAR for such employees; or
- Option 2: 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. If you choose this option then you are not required to generate payment summaries/PSAR for the terminated employees.
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