Final Warning for Xero Customers – Single Touch Payroll Phase 2

The Australian Taxation Office (ATO) introduced Single Touch Payroll (STP) Phase 2 to streamline payroll reporting for employers. The implementation of STP Phase 2 brings changes to the way Xero processes payroll, and failure to activate the pop-up notification in Xero by the end of March will hinder your ability to run payroll.

The deadline for compliance with STP Phase 2 was January 1, 2022, for most small employers. However, Xero customers were granted a deferral until March 31, 2023, to comply with the STP Phase 2 reporting requirements. The deferral was granted by the ATO, acknowledging that many small businesses have been impacted by the ongoing COVID-19 pandemic and may need additional time to prepare.

The deferral granted to Xero customers for STP Phase 2 compliance provides additional time for small businesses impacted by the ongoing pandemic. However, compliance with the new reporting requirements is still mandatory for all employers.

Employers must ensure that their payroll systems can capture and report the required information, which includes gross pay, tax withheld, superannuation contributions, and additional information such as salary sacrifice arrangements.

To ensure compliance with STP Phase 2 by March 31, 2023, follow these steps in Xero:

  1. Ensure employee records are updated with correct employment types, employment basis, and tax scales.
  2. Update or replace earnings items and assign each to one of the eight STP Phase 2 reporting categories.
  3. Assign categories to leave pay items.
  4. Enrol by clicking the designated button to move to STP Phase 2 reporting.

Failure to comply with STP Phase 2 reporting requirements can result in penalties and interest charges from the ATO. Employers should take the necessary steps to ensure they are compliant by the new deadline of March 31, 2023.

If you have not yet made the transition, now is the time. Please get in touch with Bookmates on (03) 5821 8644 as soon as possible if you need any assistance in this area.