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How Single Touch Payroll paved the way for JobKeeper

“When we designed Single Touch Payroll, we certainly didn’t have a global pandemic in mind,” says ATO assistant commissioner Jason Lucchese. “But the fact we were able to leverage a digital asset co-designed by industry and use it to support economic stimulus is testament to the good foundations we had.”

The stimulus Lucchese is referring to is, of course, the federal government’s JobKeeper program, which saw $70 billion distributed to businesses in the first six months of the pandemic as a way of maintaining employment. But Single Touch Payroll (STP) has deeper roots than JobKeeper – it was proposed in December 2014 to help streamline tax and income reporting. STP had a staged rollout: employers with more than 20 staff were brought into the system on July 1, 2018 and those with fewer than 20 employees joined on July 1, 2019.

“There was no big bang,” says Lucchese. “Rolling it out in stages was a deliberate decision.”

The beginnings of Single Touch Payroll

STP was designed to reduce red tape for small- and medium-sized businesses, says Xero’s head of industry Matthew Prouse. 

Most people will remember receiving group certificates at the end of every financial year. It was a key piece of paper that allowed citizens to do their taxes. But group certificates disappeared under STP, with income, tax and super figures reported to the ATO in near real-time. 

“It was all about standardising payroll messaging,” says Prouse. “It provides the ATO with more frequent information, and it also gives employers and employees more data, as their pay and tax are available at any time through MyGov.”

A vital part of the beginning of STP was frequent consultation with the software industry, tax agents and the accounting profession. “One of the core design principles was working with those groups so we could get the design right,” says the ATO’s Lucchese.

At the centre of STP’s design was aligning it to natural business processes, ensuring it tapped into how businesses operate. “It’s all about what people do every day; it’s about tapping into the payroll.”

Business software, such as Xero, needed to work with the new system. In all, there were about 350 business and accounting packages available to employers Australia-wide. Once this was achieved, STP phase one was all about putting standardised payroll messages in the same digital “envelope”. 

“It’s not very granular – essentially being gross pay, tax withheld, superannuation information as well as some other detail,” says Prouse. “It was all about simplifying things for employers.”

Single Touch Payroll phase two

STP phase two, introduced to some businesses in January 2022, brings in the welfare payments system and Services Australia. “If you cast your mind back to the last budget predicted to be in surplus, the cost savings from greater efficiencies to Services Australia was in the region of $5 billion,” says Prouse. “This was all down to phase two.”

STP phase two involves greater reporting of wages and income to Services Australia, making it easier to calculate welfare payments. Another benefit, says the ATO’s Lucchese, is many Services Australia forms come pre-populated with relevant information, assisting the process many Australians go through applying for – and receiving – welfare and benefits payments.

“Phase two also reduces the reporting requirements on businesses, something employers have told us is burdensome,” says Lucchese. Data sharing between the ATO and Services Australia isn’t new, he adds, but phase two brings greater efficiencies to both business and government.

There’s no phase three planned, but Xero’s Prouse says work is ongoing in the ‘RegTech’ field. “These changes won’t be driven by the ATO this time, but more likely by the Attorney-General’s Department and software companies looking to ease the reporting and compliance burden on businesses.”

The JobKeeper connection

Put simply, STP was the mechanism that delivered the JobKeeper stimulus package to employers, and by association, to the staff those businesses had on their books. “Within 48 hours of it becoming law, there were 20 payroll products already supporting it,” says Prouse. “Without STP, JobKeeper would have been impossible.”

This is because the real-time wages and salary data received by the ATO, together with software containing pre-filled forms for every employee eligible for the support, informed government decisions on how much to spend and where to target that spending.

“What we learned from STP was to get the right people together and leverage off the system we had, rather than build something bespoke,” says Lucchese. “It was a rapid and uncertain time, and we were able to come together in a collaborative way to deliver benefits to employers and the public.”

What’s critical is the ATO had the systems in place to deliver the stimulus package that enabled many Australians to stay afloat in the dark, uncertain times of the first year of the pandemic.

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