This article originated from the Xero blog on June 27th 2022. We are independent from Xero, any content and links below are directly from Xero and not produced by XU Magazine, the independent magazine for Xero Users by Xero Users.

Changes are on the horizon for Single Touch Payroll (STP) Phase 2, the next stage of the STP journey. This will see Australian businesses build on their existing reporting to share more information each pay cycle. To help you make the transition, Xero is rolling out these changes in three stages ahead of our deferral deadline later this year, with the majority of updates available from August.

We previously shared a broad overview of this rollout. Now, as we get closer to the launch, we want to bring you up to speed on when you’ll see these updates in Xero.

STP Phase 2 will update how you file STP

By now, most Australian employers file using STP. It’s a way of capturing relevant information and sharing it with the ATO each pay run – and why we’ve bid farewell to EOFY payment summaries. STP Phase 2 is the next evolution of this reporting. Where phase one had us reporting employees’ tax and super directly to the ATO, STP Phase 2 expands the program to capture more detailed information. This reduces the compliance burden for employers and individuals, and helps the admin side of things for the ATO and Services Australia.

Although you will need to provide the ATO with more information, the way you submit STP reports won’t change. How much it differs from your current process will depend on the unique qualities of your business and employees.

The changes will kick off from this August within Xero

There are a few big moments on the horizon as we roll out the updates in three key stages. But don’t worry, we’re here to support you along the way as you make the transition. Here are the dates you should know:

Stage one – August: The first part of this process is transitioning your new and existing employee records to be STP Phase 2 compliant. This means providing new details on existing staff, like whether they’re an employee or contractor. Some of you may already be testing out the new employee set up process as part of our limited release so will be familiar with these fields.

Stage two – August: Next, you’ll need to identify and update pay items with the new earnings categories defined by STP Phase 2. These new earnings categories are already available in Xero Payroll, like Directors’ fees and Bonuses and Commissions, if you want to get a head start.

Stage three – October: This is the final step in the STP Phase 2 transition and will break paid leave down into additional subcategories. We’ll support you with a guided payroll experience to more easily update existing leave categories to meet the new reporting requirements.

Start planning time for your transition

While you’ll have the time to make all relevant changes, the best approach is to set aside time to get it done ahead of the end of year deadline. Once all of this is done, you can file your first-ever STP Phase 2 compliant pay runs.

Xero’s educational resources and transition tools will help you through the process

We’ll keep you updated at every step, with plenty of educational resources, like webinars, videos and how-to articles across channels like Xero Central and social media, as well as in payroll updates to guide you along the way.

We’ll also be launching two transition tools in August to help you work through the changes:

• Employee record transition wizard: Using this guided experience, you’ll be able to update existing employee records to capture relevant STP Phase 2 items.
• Pay item transition wizard: After your employee records are updated, you’ll be able to identify and update pay items and pay templates to the new STP Phase 2 earnings categories using this tool.

EOFY reporting will stay the same for FY22

It’s important to note that all Xero payroll customers will continue to report STP Phase 1 for the time being. The rollout of STP Phase 2 pay items and updates to the employee setup process in Xero Payroll will not affect reporting or any year-to-date (YTD) values sent to the ATO, including the STP finalisation process in July 2022. Your advisor can support with your EOFY reporting as usual.

Get familiar with the pay items and stage one limited release

If you meet the criteria for the stage one limited release, you can get started by signing up in Xero Payroll. Otherwise, now is a good time to get familiar with the new earnings categories and other additions already available within Xero. As always, you should seek independent advice as appropriate for your business.

We’ll continue to let you know as STP Phase 2 changes are rolled out and make sure you have what you need to be ready.

Find out more about STP Phase 2

Looking for more information on STP Phase 2? Take a look at our guide to STP Phase 2, timeline infographic and this handy checklist. You can also visit Xero Central or refer to the ATO’s employer reporting guidelines.

We’ll be sharing plenty of information and educational resources over the next few months as we get closer to these big updates. Keep an eye out in Xero Payroll and across all our channels, and reach out if you do have any questions – we’re here to help.