Businesses that have been exempt from reporting via Single Touch Payroll (STP) in the 2021/22 financial year, and 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, which should be read in conjunction with the EOFY Payment Summary Guide, based on commonly asked questions around the payment summary process. Additionally, we have included references to STP reporting to try to clear up any confusion around year end reporting methods that may vary for each business.
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 - Payment summaries or STP finalisation event? 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 to clear up any confusion around year end reporting methods that may vary for each business. If you are confident with the year end reporting method you have chosen, then you can proceed directly to Section 2.
- Section 2 - Housekeeping: Once you have confirmed that you should be lodging payment summaries as your year end method, this section will cover off questions around tasks that should be performed prior to generating payment summaries.
- Section 3 - Payment summary process: This section covers off any questions around generating payment summaries, publishing payment summaries and lodging the data to the ATO.
- Section 4 - Enabling STP: This section will assist businesses that will be reporting STP for the first time in the 2022/23 financial year to make sure they are set up correctly.
Section 1: Payment summaries or STP finalisation event
In short, the only businesses allowed to generate and lodge payment summary data to the ATO are as follows:
- WPN holders that have not lodged a successful (or partially successful) STP event during the financial year; or
- Businesses that have been granted a deferral or special exemption from the ATO and have not lodged a successful (or partially successful) STP event during the financial year. If this scenario applies to you, you will need to send an email to the support email address provided at the end of this article and attach written proof from the ATO so that we can switch on the payment summary functionality for your business.
If you meet one of the criteria above and want to proceed with lodging payment summaries as your year end method, you can proceed to Section 2. Alternatively, even if you do meet one of the criteria above, you may prefer to lodge a finalisation event via STP as your year end method. This is possible depending on your scenario - refer here for more details.Special note regarding JobKeeper and JobMaker: Employers who, at one stage throughout the financial year, were claiming JobKeeper payments or the JobMaker Hiring Credit would have had to so via STP reporting. As such, these businesses cannot generate payment summaries as their year end method - rather, year end processes must be done via an STP finalisation event.
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:
Additionally, payment summary generation will be 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!
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 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.
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 in this payroll system from the start of the financial year), the first STP event lodged will have already included the YTD payroll data for each employee included in that 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 that 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 have NOT been reporting via STP during the financial year but want to complete the year end process by lodging an STP finalisation event rather than payment summaries. Is this possible?
The answer to this will vary depending on your business scenario:
- 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. Otherwise, WPN holders using the services of a registered agent can process an STP finalisation event in lieu of generating payment summaries.
- For all other business scenarios you can definitely process an STP finalisation event in lieu of generating payment summaries.
If you fall within any of the above business scenarios that allow you to lodge an STP finalisation event, you 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, you will see the following validation in the finalisation event that will prevent you from lodging the event.
- Once you have successfully lodged the pay event, you can create an STP finalisation event. Refer to our STP End of Year Guide for detailed instructions on completing year end processes via STP.
Please be aware that once you commence the STP finalisation event process you will not be able to generate payment summaries for your employees.
We changed payroll systems during the financial year and have not migrated over terminated employees (terminated in the prior payroll system) to this payroll system. What year end process do we follow to finalise 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: Business was reporting via STP in previous payroll system
If this is the case you need to ensure that the final STP event lodged in the previous payroll system included the terminated employees and those terminated employees 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. If that is what occurred in the previous payroll system then there is nothing further required for you to do for the terminated employees as the finalisation declaration for the financial year already occurred in the previous payroll system. If this has not been done, then you will need to complete a finalisation event for the terminated employees in the previous payroll system - but ONLY for those terminated employees.
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: Business was not reporting via STP 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 for those 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 for those employees. Refer to our STP End of Year Guide 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 2: Housekeeping
It is best practice to ensure all business and employee settings/earnings are correct before commencing the payment summary year end 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 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 'Housekeeping' 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 2021/2022 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 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.
It will be quite obvious to you if there are unfinalised pay runs for the 2021/2022 FY when you navigate to the 'Payment Summaries' screen and select the correct financial year. If you see the following warning message below, this will indicate unfinalised pay runs exist:
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 'Download' > 'PDF' (from the 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 in these instances in order to avoid failed lodgements with the ATO. You will know there is a validation error for an employee in 2 sections (only after you have clicked 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 should be read by businesses who, although exempt from reporting STP in the 2021/2022 financial year, are required to commence reporting STP in in the 2022/23 financial year or, alternatively, want to commence reporting in the new financial year.
Below are important takeaways that newly registered STP businesses must be aware of when preparing for their first STP lodgement to ensure a successful process.
We have introduced a wizard to help guide you through the process of enabling STP for your business. Detailed instructions on how to complete the wizard 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 to 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 pay categories are set up correctly for STP
The introduction of STP Phase 2 has brought about a focus on the disaggregation of gross income. The ATO has stipulated that payment types should be separately itemised when reporting, so it is important to ensure they are classified correctly. As such, once you published the payment summaries and before you commence reporting through STP you should ensure that all pay categories have been assigned the correct 'Payment Classification'. Detailed instructions on classifying pay categories and descriptions of the payment classifications available can be found here.
Ensure deduction categories are set up correctly for STP
As part of STP Phase 2, a number of new classifications have been introduced to categorise the deduction types, so it is important to ensure your deduction categories have been classified correctly. This article has more information on the deduction categories available.
There have also been two Salary Sacrifice classifications introduced as part of STP Phase 2:
- Salary sacrifice (superannuation): This refers to an effective salary sacrifice arrangement, entered into before the work is performed, where contributions are paid to a complying superannuation fund, whereby the sacrificed salary is permanently foregone.
- Salary sacrifice (other employee benefits): This refers to an effective salary sacrifice arrangement, entered into before the work is performed, for benefits other than for superannuation, where the sacrificed salary is permanently foregone. Examples include novated lease, gym membership, workplace giving donations, car, property (goods, land, buildings, shares and bonds), expense payments (loans, school fees, childcare costs and home phone costs) and work-related items such as portable electronic devices and equipment.
If salary sacrifice arrangements have been made where the contributions are paid to a super fund, we strongly recommend using the system default deduction category for Salary Sacrifice Super. Alternatively if the salary sacrifice arrangements are for benefits aside from superannuation, please ensure to use the Salary sacrifice (other employee benefits) classification.
Should we register STP now or after payment summaries are lodged?
The decision is yours to make. You can register for STP (and commence lodging STP events for the 2022/23 FY) prior to publishing/lodging payment summaries for this financial year, or you can wait till after you have lodged the payment summaries.
The important thing to note is that the ATO do have strict deadlines for reporting STP (this requirement excludes closely held reporting where the employer can choose to report on a quarterly basis. Further detail on closely held reporting obligations can be accessed here). 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."
As such, you really need to assess your pay frequencies and when the first pay date for the new financial year kicks in. If this is prior to when you plan on publishing payment summaries for the 2021/22 FY then you really should register for STP before your first pay date.
If you have any feedback or questions please contact us via firstname.lastname@example.org.