By now the phrase ‘Single Touch Payroll Phase 2’ will hopefully not be a surprise to you. Albeit its introduction has been a mighty struggle for businesses of all sizes.

One of the biggest difficulties is the concept that these ATO requirements for STP2 must not change the way wages are calculated for employees. It does change how those amounts need to be reported to the ATO via their payslip.

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Officially, these changes commenced on 1 January 2022, however, many payroll software providers were given an extension to enable them to implement the changes to their systems.

What is STP Phase 2?

In phase 2 the all-purpose hourly rate or any over-award rates of pay the allowance components of that rate need to be separated out on the payslip.

Employers have historically set up their contracted rates to be inclusive of employees’ hourly rate and all-purpose allowances; that arranged is still lawful and is not changed by these reporting requirements. What is required is that employers need to list the separately identifiable allowances on the payslip.

The most common allowances that will need to be disaggregated for electricians and apprentices are the all-purpose allowances of Tool Allowance, Electricians Licence Allowance and Industry Allowance.

There has been feedback that higher contracted rates or rates made under Individual Flexibility Agreements do not need to be shown separately as the employer cannot ‘know’ how those rates can be broken down.

However, MEA has sought clarification from the ATO on their view of this position. The ATO accepts that there may be some scenarios where the employer cannot breakdown all the possible allowances that maybe applicable in an all-inclusive rate scenario, there are known allowances that must be paid to a worker under the electrical award as all-purpose allowances. These should be shown.

An example of where an allowance may not be ‘identifiable’ is if in the higher rate of pay the travel allowances are incorporated but the worker may start and/or finish at the depot or site on various days and this is not identifiable for each occasion.

Members have also expressed confusion about statements on website material such as:

Some employers may have historically set up their payroll using a single rate that includes the employees’ hourly rate and the all-purpose allowances. These allowances now need to be “disaggregated” unless:

• • the allowance forms part of overtime
  • or cash out of leave or unused leave on termination.

This means that when paying overtime the various allowances do not need to be separated out for each hour of the overtime worked. For example, an all-inclusive rate of $40 per hour will be shown as such on the payslip – along with the relevant overtime penalty rate applied.

Where annual leave is being paid out on termination – the allowances do not need to be shown separately.

How does STP2 work?

For the purposes of demonstrating how to break out the rate under the STP2 requirements for the electrical award we will use the following scenario:

An example ‘all-inclusive’ rate of $40 per hour for a full-time electrician (James) working 38 hours per week. This rate will be inclusive of the following allowances tool, industry, licence, travel time per day, start/finish on the job (sites up to 50km from office/depot) and annual leave loading.

This has been chosen as it is quite a common arrangement of award conditions in an over-award rate of pay. Fred employs James under the Electrical, Electronic and Communications Contracting Award 2020:

In this week James has done a normal 38 hour working week, three hours of overtime at time and a half. He starts at the depot each day but he finishes on site at his last job and drives a work vehicle home.

The wage for this working week is calculated as simply as $40 per hour x 38 hours = $1,520.

When Fred reports the wages, he paid James for his week of work through STP, he includes:

⁺ These allowances are ‘all-purpose’ allowances. They must be included in all wages calculations. Overtime, annual leave, sick leave, public holidays etc. The payroll system needs to be specifically setup to treat these allowances in this way.

* No need to separate the allowances where they are part of the overtime calculation.

Is your payroll software up to it?

By and large the prominent small business payroll software systems have taken a long time to implement changes relating to all-purpose allowances. While most have been updated with this functionality, setting up the allowances properly will likely require information and guidance from the software provider.

It is the view of MEA that if the system you use cannot provide functionality to manage all-purpose allowances that a different software package may need to be considered. A system that does not include these allowances in calculations of overtime, leave and the like (only calculating on the base rate) will likely lead to an underpayment of wages.

Do you use Xero? 

Please see this link for how to include the allowances as ‘all-purpose’. 

Xero has provided a short recording of how to set up these allowances.

How do the different codes relate to the Electrical Award?

The allowance types that will be commonly reported on from within the Electrical, Electronic and Communications Contracting award are as follows:

More detail can be found at the following link to the ATO’s reference guide to the codes.

What this all means

In summary, while the STP2 reporting requirements are frustrating and difficult to implement in many systems the overall effect of these changes should not impact how workers are paid under the award or their contract of employment.

These requirements only relate to how their payments are expressed on the payslip. It is important to also ensure that the all-purpose allowances are set up properly so that they calculate overtime and leave correctly.

If you need assistance regarding STP2, or for further information Master Electricians have unlimited access tothe Employer Advice Line on 1300 889 198.