Mike Rich speaking at the 2017 Accountants' Technology Showcase Australia
I am writing this blog as a recognised but exasperated expert on improving medium businesses, a software industry veteran and co-founder of the NFP M-Institute (ANZ). I recently presented at the 2017 Accountants' Technology Showcase Australia (ATSA) and I was flabbergasted, with less than nine months out from becoming law, at the limited knowledge amongst accounting firms about Single Touch Payroll (STP). A recent poll conducted by Accountants Daily also supports this claim. It found that less than 10% of accountants' clients are ready for the shift to STP.
1. Threat or opportunity?
STP takes effect on 1 July 2018 and compliance is mandatory for those with 20 or more staff. It is a ticking time bomb. Medium businesses are impacted the most – those with $2m to $100m in revenue. But if you get in early, STP presents a golden opportunity to undertake a proper business review and upgrade or replace your solution with software that improves other areas of your business at the same time.
2. Every payroll package must be upgraded or replaced
STP reporting involves payroll information being sent electronically to the ATO at the end of every pay run. It is this direct connection to the ATO that makes this no simple software update. I calculate the cost of making Attaché's payroll solution STP-compliant to be over $1 million. No wonder other payroll suppliers are rationalising their product offerings. My estimate is that over 60% of the payroll packages in use today will need to be replaced.
3. UK employers wished they had more time
The UK moved all employers to a similar model four years ago. I think the ATO approach is much better. By initially limiting STP to businesses with 20 or more staff it reduces the impact from 800,000 employers down to 100,000, accounting for about two thirds of all employees between them. Also, the payroll data that is sent to the ATO is ‘year-to-date’ (rather than just for that pay period) so it's easier to correct if initial issues occur. About 10% of the 100,000 are large employers who are typically aware of their obligations. But it's the medium businesses I'm worried about. The overwhelming regret from UK businesses was they left it too late – most wished they had more time.
4. Small employers are likely to also opt in
And there is a twist. The number of businesses with less than 20 staff who decide to opt in to STP I believe will be high, creating even more urgency for medium businesses to act now. The 100,000 businesses moving to STP could double or triple. The smaller businesses will see the benefits that STP brings, like streamlined reporting and online forms. And for some it will avoid them upgrading in two steps – once before 30 June 2018 to access the new payment summary v12 and tax file declarations v3.0 and then again for STP when it's extended to all employers from 1 July 2019.
5. Avoid a panic decision that impacts your business
Closer to 1 July 2018 we'll see panic decisions to replace old multi-user software suites. We saw it with the introduction of GST and we'll see it again with STP. For many, the functionality on their accounting side will go backwards or be vastly inferior to what they could have gotten. If your revenue is under $2 million you probably suit a small cloud system, but over 70% of medium and large businesses have or are moving to hybrid systems – in-house software with embedded cloud applications, i.e. the best of both worlds. It's the medium businesses with 10+ staff I am most worried about, especially those with stock and debtors (like wholesalers, distributors, manufacturers). These are the ones who have the most to lose or gain.
What is my advice to payroll managers and their advisors?
If I was running an accounting firm today I'd appoint an ‘STP Champion’ – just like back in GST days. Business-process driven rather than an IT zealot, their first task would be to identify every client who could be impacted and whether their payroll needs to be upgraded or replaced. Then help them on a broader business improvement journey – starting with payroll. If I was a payroll manager, I'd be embracing my ‘STP Champion’ status as an opportunity to evolve my role and shine. I'd be looking at what else the upgrade offers in terms of broader business improvement. If a replacement is required, I'd ask about the impact on the accounting side.
Where can I get some STP guidance?
Attaché has developed a free STP Checklist to help prepare your business for Single Touch Payroll. It targets medium businesses employing 10 or more staff, with stock and debtors (e.g. wholesalers, distributors, manufacturers) as well as businesses with 20 or more staff in areas like aged care or with industry or ERP software. Download the checklist now or call 1300 288 224 for more information. You can also visit the ATO's STP information portal.
Managing Director, Attaché Software