Single Touch Payroll – What you need to know

| October 24, 2017

I recently presented at the 2017 Accountants Technology Showcase Australia and I was flabbergasted that accounting firms still don’t understand the implications of Single Touch Payroll with less than nine months from it becoming law. A recent poll conducted by Accountants Daily found that less than 10% of accountants’ clients are ready for the shift to STP.

So is this a threat or opportunity? STP takes effect on 1 July 2018 and compliance is mandatory for those with 20 or more staff. It is a ticking time bomb and medium businesses, with between $2m to $100m in revenue, will be affected the most. But, if you get in early, STP also presents a golden opportunity to undertake a proper business review and upgrade or replace your solution with software that improves other areas of your business at the same time.

Every payroll package may have to be upgraded or replaced as STP reporting involves payroll information being sent electronically to the ATO at the end of every pay run. It is this direct connection to the ATO that makes far more than a simple software update. I calculate the cost of making Attaché’s payroll solution STP-compliant to be over $1 million. No wonder other payroll suppliers are rationalising their product offerings. My estimate is that over 60% of the payroll packages in use today will need to be replaced.

The UK moved all employers to a similar model four years ago and I think the ATO approach is much better. By initially limiting STP to businesses with 20 or more staff it reduces the impact from 800,000 employers down to 100,000, accounting for about two thirds of all employees between them. Also, the payroll data that is sent to the ATO is ‘year-to-date’, rather than just for that pay period, so it’s easier to correct if initial issues occur. About 10% of the 100,000 are large employers who are typically aware of their obligations. But it’s the medium businesses I’m worried about. The overwhelming regret from UK businesses was they left it too late – most wished they had more time.

Small employers are likely to also opt-in – creating even more urgency for medium businesses to act now. The 100,000 businesses moving to STP could double or triple as a result. The smaller businesses will see the benefits that STP brings, like streamlined reporting and online forms. And for some it will avoid them upgrading in two steps – once before 30 June 2018 to access the new payment summary v12 and tax file declarations v3.0 and then again for STP when it’s extended to all employers from 1 July 2019.

Closer to 1 July 2018 we’ll see panic decisions to replace old multi-user software suites. We saw it with the introduction of GST and we’ll see it again with STP. For many, the functionality on their accounting side will go backwards or be vastly inferior to what they could have gotten. If your revenue is under $2 million you probably suit a small cloud system, but over 70% of medium and large businesses have or are moving to hybrid systems – in-house software with embedded cloud applications – which offers the best of both worlds. It’s the medium businesses with 10+ staff I am most worried about, especially those with stock and debtors, such as wholesalers, distributors and manufacturers. These are the ones who have the most to lose or gain.

If I was running an accounting firm today I’d appoint a ‘STP champion’ – just like back in GST days – to drive change from a business process, rather than an IT centric, point of view. Their first task would be to identify every client who could be impacted and whether their payroll needs to be upgraded or replaced. They could then be helped to take a broader business improvement journey – starting with payroll. If I was a payroll manager, I’d be embracing my ‘STP champion’ status as an opportunity to evolve my role and shine. I’d be looking at what else the upgrade offers in terms of broader business improvement. If a replacement is required, I’d ask about the impact on the accounting side.

Payroll managers and advisors looking for more guidance might be interested in this free video brochure developed by Attaché for medium sized businesses.

This piece was first published on Open Forum.