Employers with closely held employees: How will STP work for you?
Article by Emma Harnas
You’re probably aware of Single Touch Payroll (STP), the new way of reporting tax and super information to the ATO.
But how does STP work if you have closely held employees? When does it start and what do you need to know in order to comply with regulations?
That’s all explained below…
Overview of STP
Under the new system, you’ll use payroll software, or another STP-ready solution, to send your employees’ salary and wage information, pay as you go (PAYG) withholding, and super information to the ATO each time you pay your employees.
This means that:
- Your pay cycle does not need to change (you can continue to pay your employees weekly, fortnightly or monthly).
- You will now report super information to the ATO.
- You no longer need to give your employees a payment summary for the information you report and finalise through STP – it will be available to them on myGov.
- You will need to finalise your STP information at the end of the financial year so that the ATO knows all the data you have reported is complete and can provide this to your employees to complete their tax returns.
STP and closely held employees
Do you make wage payments to one or more closely held employees?
A “closely held payee” is one who is “not at arm’s length”. This means that they’re directly related to the entity from which they receive payments.
This may include:
- Family members of a family business
- Directors or shareholders of a company
- Beneficiaries of a trust
Concessional options for payers of closely held employees
There are two options available to payers of closely held employees under the new STP regulations.
1. Later start date for reporting closely held payees
If you have 19 or fewer employees, you will not need to report closely held payees through STP in the 2019–2020 financial year.
You don’t need to apply for this later start date for reporting your closely held payees.
However, all other employees (“arms-length employees”) must be reported through STP from 1 July 2019 or your deferred start date, if one has been granted.
For closely held employees who are not reported through STP for the 2019–2020 financial year, simply follow existing processes.
This means that you will still need to provide these employees with a payment summary and lodge a Payment Summary Annual Report (PSAR) with the ATO.
2. Report closely held employees quarterly
From 1 July 2020, you will have the option to report closely held employees’ information quarterly through STP.
This report will be due at the same time as your quarterly activity statement.
You will need to notify the ATO that you will report your closely held payees quarterly. This will be a similar process to the end of year lodgement concession for the PAYG withholding summary annual report.
A new closely held lodgement concession form is not currently available.
It will be necessary to make reasonable estimates each quarter of the amounts paid to closely held employees.
You can calculate these amounts using one of the following methods:
- Withdrawals taken by the payee (but do not include payments of dividends or payments which reduce liabilities owed by the business to the closely held payee).
- By calculating 25 percent of the total salary or director fees from the previous year.
- By varying the previous years’ amount (to take into account trading conditions) within 15 percent of the total salary or directors fees for the current financial year.
These methods are similar to the way that you would calculate Pay As You Go (PAYG) instalments.
If you choose to report closely held payees quarterly, you will be permitted to finalise information you’ve reported for the year and to make any necessary adjustments up to the due date of your income tax return.
For more information regarding your due date or any other concerns about STP and closely held employees, please contact us.