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All three stages of Xero’s STP Phase 2 roll out are now available – it’s time to make the transition

November 29, 2022

This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Over recent months, we’ve been keeping you updated on Xero’s Single Touch Payroll Phase 2 roll out. This will see your business build on its existing STP reporting to share more information with the ATO and other government agencies whenever you process a pay run. And now, we’re pleased to announce that all three stages of the roll out are available, meaning you can get your payroll data STP Phase 2 ready today.

Not sure where to start? Don’t worry – we’ve compiled all the information you need below. What’s more, your advisor is always there for support, so be sure to reach out if you need further guidance.

Xero’s STP Phase 2 reporting deferral is through to 31 March 2023, meaning Xero Payroll customers will have until the New Year to activate STP Phase 2. However, we strongly recommend getting your payroll data ready as soon as possible to stay ahead of this important compliance deadline.

How to complete each step of your transition to STP Phase 2 in Xero

To start your transition today, head on over to the STP Phase 2 Portal in Xero Payroll to progress through each of the following steps:

Step one

The first part of this process is transitioning your existing employee profiles to be STP Phase 2 compliant. This means providing new details, like whether they’re an employee or contractor. Step one also includes providing additional information when onboarding new employees to Xero Payroll. More information can be found here.

Step two

You’ll need to identify and update certain pay items with the new earnings categories defined by the ATO for STP Phase 2 reporting. This is because gross amounts for each income type will now need to be reported as a separate itemised amount, like overtime or allowances. Head to Xero Central for more details, including a breakdown of the different earnings categories.

Step three

This is the final step in the STP Phase 2 transition which will break down paid leave into additional subcategories. We’ll support you with a guided experience in payroll so you can easily update existing paid leave types to meet the new ATO reporting requirements. You may also find that some of your leave pay items already have the correct reporting category assigned. Visit Xero Central to learn more about this stage.  

Don’t forget to mark each step ascomplete in the STP Phase 2 Portal before moving forward. This ensures your payroll data is accurate and could help reduce filing errors later down the line.

Reporting all purpose allowances

With STP Phase 2, all purpose allowances must be disaggregated, meaning they’re reported separately to the employee’s hourly or ordinary earnings rate.

In Xero Payroll, you can create a separate allowance pay item with the appropriate type for each allowance included in the all purpose amount. You will also be able to select an option for the allowance to be included in the calculation of overtime and paid leave rates.

This is intended to reduce the manual burden on payroll admins to calculate and adjust an employee’s overtime or paid leave within their payslip. This occurs when an employee’s award states that both the allowance is to be paid for all purposes — including when calculating leave and overtime. Head to Xero Central for more information on these changes.

There’s no time like the present – start transitioning your payroll data today

Now that all three stages of Xero’s STP Phase 2 roll out are available, it’s time to transition your payroll data. As we come closer to the deadline, the sooner you can tick this off your to-do list, the more prepared you’ll be.

Remember, all employing Australian businesses must become STP Phase 2 compliant. So if you’re working with your advisor to make the transition, keep in mind they’re likely helping many others do the same. Stay patient as they work through the process, and in the meantime, check out our Resource Hub or Xero Central for more information.  

Introducing Xero’s complete guide to STP Phase 2

To help you navigate the transition to STP Phase 2 in Xero, we’ve gone ahead and created a comprehensive guide. This has what you need to know (and do) to make the move, from step-by-step instructions to detailed explainers on leave, earnings and reporting categories.

Looking for more information? Head to Xero Central or refer to the ATO’s employer reporting guidelines. And don’t forget to reach out to your advisor for additional support.

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