Powerful but Affordable Payroll Software for Small Business with Xero

Pay yourself and your staff and report payroll details to the ATO with cloud payroll.

Automate tax, pay and super calculations in a click.

Single Touch Payroll Sorted

Use Xero payroll software to simplify compliance with ATO requirements.

  • Lodge salary, wage, PAYG and superannuation details
  • Send Single Touch Payroll reports each payday.

Automated Payroll Calculations for Sydney Small Businesses 

Pay employees in just a few clicks using Xero payroll software. Payroll data updates your accounts automatically.

  • Automatic tax, superannuation and leave calculations
  • Flexible pay calendars and pay rates
  • Payslips are instantly available to employees in Xero Me or can be shared via email.

Employee self-service

Reduce payroll admin and save time by giving your employees limited access via the Xero Me mobile app or the web.

  • Let staff submit leave requests and timesheets for review
  • Allow employees to view leave balances and payslips
  • Use the Xero Me mobile app or Xero Me on the web

Why should I be using Payroll software for my small business?

Every time the Fair Work Commission makes a new ruling or interpretation, it adds another ‘wrinkle’ that large and small businesses need to be aware of and understand.

Payroll software providers often come to the market with “set and forget type” payroll technology, and this has lulled businesses small and large into “a false sense of security”.

With technology appearing to do everything, many businesses have almost abdicated their own internal responsibility to keep up with all the changes and don’t pick the right partner to go on the journey with them and help them keep them up.

There are many different reasons why employers wrongly pay their employees. But mostly it’s a result of employers just not prioritising proper payment and ensuring they get it right.

Companies ensure their tax affairs are right by getting a tax adviser in and not trying to do it themselves. It seems employers haven’t done the same thing in terms of their payroll obligations.

Certainly, there is a degree of complexity in payroll, but it’s not complex in a way that there’s an excuse for not doing it right or for not paying the right amount of attention to it.

Payroll difficulties can be greatly mitigated by seeking out appropriate pre-emptive advice and actively auditing payroll processes.

It needs to be recognised that it’s far too easy to blame the complexity of the tax and pay system, but in Australia, only about 20 percent of people are covered by awards or are award-reliant. Further, employers will often overlook the ability to simplify payroll by utilising mechanisms that the legislation itself provides.

This includes, for example, the possibility of individual flexibility agreements, or enterprise agreements that cover all relevant staff and simplify payroll and the administrative burden on employers.

Single Touch Payroll explained

Single Touch Payroll (STP) is a government initiative that requires businesses to report pay details to the ATO digitally.

  • Online software required Businesses must use STP software to comply with ATO Single Touch Payroll Phase 2 requirements.
  • Report every pay run Xero compiles and sends an STP-compliant payroll report to the ATO each pay day.

A business owner sends a Single Touch Payroll Phase 2 report working at his desk.

Single Touch Payroll Phase Two 2023

Tax file number declaration

Employers are currently required to submit a tax file number declaration to the ATO. Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.

Income type and country codes

You already tell the ATO about the type of income your employees receive in your STP report.

The reporting of income types is being introduced in Phase 2 to more flexibly:

  • Identify payments you make to your employees with specific tax consequences
  • Make it easier for them to complete their individual income tax return
  • Help the ATO identify where you are using a concessional reporting arrangement

There are instances where you might need to report a country code. For example, if you make a payment to an Australian resident working overseas, you need to provide information about the host country.

Termination reason

Specifying a reason for termination will be mandatory when an employee finishes their employment which removes the need for an employment separation certificate to be issued.

Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO.

Paid leave

Paid leave won’t be included as part of gross earnings when reporting earnings via STP. You’ll still need to report leave payments made to your employees in your STP report.

More information on paid leave (external link to ATO website)

Allowance types

In STP Phase 1 reporting, some allowances are reported separately, but others are reported as part of gross. You’ll now need to report all allowances separately in your STP Phase 2 report across most income types. This means that allowances previously reported as gross must now be separately itemised and reported.

Directors fees

If you pay directors’ fees, you must separately include these in your STP Phase 2 report.

Directors’ fees include payments to:

  • The director of a company
  • A person who performs the duties of a director of the company
  • A member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated

More information on directors fees (ATO website)

Lump Sum W (Return to work) payments

A return to work amount is paid to induce an employee to resume work. For example, to end industrial action or to return from working for another employer. This is a new category of lump sum payments which is being introduced as part of STP Phase 2. Previously, they were reported as gross and not individually identified.

More information on Lump Sum W (Return to work) payments (ATO website)

Tax treatment codes

Your STP Phase 2 report includes a six-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling the ATO about factors that can influence the amount you withhold from payments to your employees.

More information on tax treatment codes (ATO website)

Bonuses and commissions

There might be times when you pay some employees bonus and commission payments, which are typically paid as a lump sum. Previously they were reported as part of gross payments, but for STP Phase 2 they’ll be reported separately. 

Lump Sum E payments

This is used when you make lump sum payments for back pay from prior income years. 

Previously, this was shown on a separate line item in an employee’s payment summary. STP Phase 2 requires these payments to be reported with the tax year they originated in before finalising an employee’s records. This removes the need to provide employees with Lump Sum E letters.