Here's Everything You Need To Know About STP Phase 2
STP Phase 2 is up and running – you may find that you are being prompted in your accounting software to update your employees data – but what does that mean?
What is Phase 2?
The ATO has emphasized that the second stage of STP reporting is designed to reduce reporting requirements for different government agencies. The primary agency that STP Phase 2 has been designed for is Services Australia, which collects information regarding child support deductions, and other caregiver and family tax benefits.
What’s Different?
Phase 2 doesn’t change the payments you need to report, but it does change how they need to be reported.
It is common throughout the Building and Construction sector for allowances to be rolled into a catch-all hourly rate. These amounts were traditionally reported to the ATO as wages, rather than being split between the allowance amounts, and the salary and wage amounts.
Under Phase 2, the amounts you report won’t change, but the way in which they’re split will.
Example
Bob is employed by Wet Wet Wet Plumbing Pty Ltd under the Licensed Plumbing Award as a full-time employee. He uses a company vehicle to get to work and is required to use and maintain his own tools. Under his contract, he is paid $42/hr inclusive of all relevant allowances. On top of this, Bob is also paid a $10 weekly allowance for gym membership.
Under Phase 2, allowances must now be reported separately. Under the Licensed Plumbing Award, Bob is paid the following allowances:
| Details | Rate | Per week/day |
| Industry allowance | $38.20 | per week |
| Plumbing trade allowance | $30.97 | per week |
| Registration trade allowance | $41.29 | per week |
| Special fixed allowance | $7.70 | per week |
| Weekly tool allowance | $22.96 | per week |
| Daily traveling time allowance | $6.79 | per day |
Wet Wet Wet Plumbing Pty Ltd will now need to split out the allowances and gross wages when reporting to the ATO.
For the last payroll week, Bob worked 38 ordinary hours, and 4 hours overtime. Splitting out the relevant allowances, Bob’s ordinary earnings rate is now $38.11/hr.
Under Phase 2, Bob’s wages will be reported as follows:
| Payment type | Amount | Allowance type |
| Ordinary earnings | $1,448.09 | |
| Overtime | $252.00 | |
| Industry allowance | $38.20 | KN |
| Plumbing trade allowance | $30.97 | KN |
| Registration trade allowance | $41.29 | QN |
| Special fixed allowance | $7.70 | OD |
| Tool allowance | $22.96 | ED |
| Travel allowance | $6.79 | OD(with the description ND) |
| Gym allowance | $10.00 | OD |
Your accounting software will have step-by-step instructions on how to separate your allowances and add the new pay items in order to process payroll under Phase 2.
Xero’s instructions can be found here, while the MYOB guide is here.
Note: You’ll need to assess whether super is payable on these allowances when they are split out. Super is ordinarily payable on Ordinary Times Earning (OTE). The ATO has a handy list around what types of allowances are considered Ordinary Times Earnings:
Source: ato.gov.au
When do I have to do this by?
The original deadline for Phase 2 reporting was 1 January 2022. However, most software providers were granted a deferral by the ATO.
If you are using Xero Payroll to process your employee payments, you have until 31 March 2023 to comply with the requirements.
If you are struggling with setting your business up for STP 2, contact Xact Accounting for help.