The Australian Tax Office (ATO) has announced that it will be rolling out its Single Touch Payroll (STP) initiative this coming July. This new program is designed to resolve a number of employee payroll and tax issues that have made headlines in recent years, while also forcing Australian businesses to digitise their payroll systems. This will not only give the ATO a better real-time view into individual businesses’ payroll practices for tax purposes, it will help to protect workers. Specifically, this will allow the ATO to much more easily track and prevent widespread payment problems like the $5.6 billion in superannuation underpayments that were found to plague 2.8 million Australian workers in 2017.
What is single touch payroll?
STP is an initiative that allows employers to report the wage, tax, and superannuation payments that they make in real time. This will give the ATO insights into the timeliness and accuracy of the payroll processes of Australian businesses, and give them the ability to react to problems much more quickly than in the past. Starting on July 1, 2018, businesses with 20 or more employees will be required to use Single Touch Payroll, while smaller businesses can opt in voluntarily until 2019, when they’ll also be required to use the new system.
Businesses will report their payroll data using STP compliant payroll software. The ATO has hailed it as a more efficient way for businesses to meet their reporting obligations, though voluntary existing users, mostly larger businesses, have reported some significant difficulties. While many businesses can simply update their existing payroll software, some may need to purchase new software, while businesses that are currently still using non-digital payroll systems will need to make the switch in time for the July 1 deadline.
For many of the affected businesses, preparing for this transition won’t be as simple as implementing some new payroll software. Because this allows the ATO much more direct insight into each business’ payment behavior, it may also require significant changes in the payroll practices of some organisations.
Many of the businesses that have already adopted STP compliant software since last year have reported some difficulty in implementing the new reporting system. Businesses, particularly those that currently aren’t using digital payroll systems, need to make the switch as soon as possible. By doing so now, they’ll have a chance to go through a handful of payment periods and work out any kinks before compulsory reporting begins in July.
Review current payroll practices
As of 2017, a third of workers in Australia were underpaid an average of $2000 on their superannuation payments per year. At the same time, a 2016 study found that a stunning 84 per cent of fast food workers were directly underpaid on their wages. While many of these underpayments are accidental, they present a problem that needs to be dealt with, and that the ATO will certainly be cracking down on with these new insights. To prepare, it’s a good idea to review your current payroll practises to ensure that your business won’t be forced to deal with any expensive surprises. Businesses that do find that they’ve been underpaying in some way will also need to address those issues, and find ways to make sure that they can meet all their payroll obligations in a timely fashion going forward.
Stabilising your cash flow
Businesses underpay for many different reasons, some more problematic than others. In every case, however, correcting the problem requires business owners to stabilise their cash flow. Businesses need incoming revenues to be predictable, and they need ways to deal with interruptions or unexpected costs that don’t involve failing to meet other payment obligations.
To manage this, business owners need access to reliable and accessible short term financing. By combining supply chain finance, which allows businesses to defer outgoing payments, invoice finance, which allows businesses to effectively issue themselves an advance, and various short term loan options, businesses can get full control over their short term working capital.
Used correctly, these tools allows businesses to meet their payment obligations in a timely manner irrespective of most external factors. Invoice finance can effectively compensate for late client payment issues, while supply chain finance can defer payment obligations to free up capital for other uses, such as catching up on superannuation payments for employees. This, along with implementing STP compliant payroll software early, will prepare businesses to tackle the transition’s growing pains early, easing much of the pressure that could otherwise cause serious problems in July.