Move to STP payroll – phase 2 (Xero users)

This guide is here to help you navigate the transition to Single Touch Payroll (STP) Phase 2 in Xero Payroll. For any extra help you might need, visit Xero Central, contact the ATO, or reach out to the team here at HKS Russell. 

About Single Touch Payroll

Under STP Phase 2, the Australian Government requires all employers to report additional information through STP on or before each payday. This information will include details such as an employee’s employment or income type and the reason for any cessation of employment.

Xero has been granted a deferral on the start date of STP Phase 2 reporting which applies to all new and 
existing customers. This means that all customers reporting STP using Xero Payroll have until 31 March 2023 to report their first STP Phase 2 pay run.

Xero’s transition to STP Phase 2 has been broken down into three stages that are available now in all Xero 
organisations. We encourage you to complete each transition step as soon as possible to ensure there is plenty of time to check and correct all payroll data.

Step one – Update employee records

The first step enables the transition of existing payroll employee records to STP Phase 2 compliance. Each employee record requires:

  • Employment type – whether the individual is an employee or contractor.
  • Income type – how the individual is paid, such as salary and wages or closely held payee.
  • Employment basis – whether the individual is full-time, part-time, or casual.
  • Tax scale – the PAYG tax scale category that determines how much tax should be withheld for an
    employee.

Step two – Replace earnings pay items

For step two, assign ATO reporting categories to your existing earnings pay items from the Payroll settings or access the pay item transition tool from the STP Phase 2 portal.

Before you begin step two, make sure you mark step one as complete in the STP Phase 2 Portal. Also, ensure there are no draft timesheets or pay runs before beginning this step.

Step three – Update leave pay items

You need to assign a leave category to each of your active leave pay items in your organisation. The category determines how the payment is reported to the ATO through STP Phase 2. 

In the Payroll settings, review all leave categories that have been set up and identify which paid leave pay items are missing a category.

Step four – Switching to phase 2 reporting 

Once your payroll data is updated and you’ve marked each step as complete in the STP2 Portal, you’ll be able to opt-in to Phase 2 reporting. In partnership with the ATO, we’re rolling-out this
capability carefully to customers across late Jan and Feb. Payroll admins will be notified in Xero when it’s time to switch.

For a detailed guide, click here for Xero users

If you would like to know more or would like to discuss STP Phase 2, please reach out to the team @HKSRussell
t: (07) 3177 4120
e: advisors@hksrussell.com

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