If you’re anything like us, the shorter days and colder weather signals not only a change in season, but the nearing of another cyclical shift – the new financial year. With just over six weeks left in FY23, now’s the time to get organised. And a good place to start is with finalising payroll.
This EOFY in Xero Payroll will be slightly different than previous years. Why? Because of the introduction of Single Touch Payroll (STP) Phase 2 reporting. Now that you’ve made the transition, you can prepare your payroll data for STP finalisation. But if you’re not sure where to start, don’t stress – we’ve outlined all the steps below to ensure a seamless year-end.
1. Check your employees’ records
As part of STP Phase 2, there are key compliance requirements that affect the way employees are set up in Xero. These requirements involve changes to details in the Employment and Taxes tabs.
In Xero Payroll, all active and terminated employees (who will be included in the STP finalisation for the financial year) will need an employment type, income type and tax scale defined in their records. Learn more about updating your employees for STP Phase 2 in Xero Central.
Review your employees’ records to ensure they’re STP2 compliant. You can run the Employee Contact Details report to check for accuracy, keeping a close eye on things like date of birth, email address and postcode.
2. Review pay items and their settings
You might remember that STP Phase 2 introduced a new set of ATO reporting categories for use in your earnings, deduction and paid leave pay items within FY23, as well as any new pay items you create. Allowances will also need to be assigned an appropriate reporting type.
These categories tell the ATO how to treat each type of payment you’re reporting through STP Phase 2. So it’s important to double-check that earnings, deduction, paid leave and allowance pay items used in the current financial year are correctly assigned. For more details on reporting categories, check out our guide in Xero Central.
3. Post and file any pay runs for the 2022/23 financial year
Any pay runs with a payment date in this financial year will need to be posted and filed before you finalise your employees. If these pay runs are to be reported in FY23, don’t forget that you’ll need to make sure the payment date is on or before 30 June 2023.
Be sure to check that all of your pay runs have been filed to the ATO successfully using STP.
4. Process any outstanding superannuation payments
To claim a deduction on superannuation accruals submitted via auto super for the current financial year, super batches should be approved no later than 2:00pm AEST, 14 June 2023. Be sure to mark this date in your calendar so you don’t forget.
If you’re not registered for auto super, it’s not too late – read our support article on how to register for automatic superannuation payments. Alternatively, the payments will need to be made manually outside of Xero.
5. Reconcile your payroll accounts
After processing all pay runs for the financial year, it’s important to forensically check the accuracy of your reporting. One way to do this easily is by generating the Payroll Activity Summary report and comparing it with the General Ledger report.
You can specify a custom date range in both reports to help find any discrepancies. For guidance on reviewing payroll transactions at EOFY, take a look at this support article in Xero Central.
If you come across any discrepancies in your payroll accounts, you can use the remove and redo feature to edit the transaction and allocate it to the correct accounts.
- If you have multiple payroll expense accounts for earnings or superannuation, be sure to add up the totals for each account when comparing them to the Payroll Activity Summary report.
- Use the Account Transactions report to identify any transactions that may have been incorrectly reconciled against your Expense Accounts.
- Check for any manual journals that may have impacted your totals by running the Journal report and clicking on Manual Journals.
- If you’re unable to locate a discrepancy, try running your reports using a smaller date range to narrow down the issue.
- If you started using Xero midway through the financial year, double-check that the employee opening balances match your organisation’s conversion balances to avoid any discrepancies.
6. Next, review the Payroll Activity Summary report against the Payment Summary Details report
Stay with us – you’re almost there.
It can be easy to get the Payroll Activity Summary report and the Payment Summary Details report confused, so remember you’ll still need to compare this information if you’re completing an STP finalisation. You can run these two reports for a custom date range and make sure that the information balances.
It’s important to note here that the Payroll Activity Summary report shows gross earnings, whereas the Payment Summary Details report shows taxable earnings.
If there are salary sacrifice or pre-tax deductions that have been processed during the financial year, they will need to be deducted from the gross wages that show in the Payroll Activity Summary report. The total should then match the Payment Summary Details Report (note that this will only show truncated values – the cents will not show in this report).
7. Don’t forget to identify and amend any mistakes
Any errors made throughout the financial year can be corrected using an unscheduled pay run. Simply create the pay run for the required period and enter the adjustment amounts. You can even enter negative values, if needed.
You will need to check that the payment date of the unscheduled pay run falls within the correct financial year (for example, on or before 30 June 2023) to ensure it’s reported correctly.
8. Process STP finalisation
Last but not least, it’s time to process your STP finalisation. Our product team has been working to make this simpler, so if you’ve finalised STP in Xero Payroll previously, you may notice some changes to the process this year-end.
Take a look at these steps on how to finalise your payroll information with the ATO. There’s also an easy-to-follow checklist to make sure you don’t miss anything.
You’ll need to file at least one pay run before you’re able to complete the STP finalisation process. Your first submission will include all year-to-date (YTD) payroll information that has been entered into Xero.
A few tips to help you along the way:
- Information included in the STP finalisation will pre-populate based on the information processed in Payroll. You will need to manually enter any Reportable Fringe Benefit Amounts (RFBAs) in the editable fields.
- If you need to report any leave paid out on termination as ‘Lump Sum A’ or ‘Lump Sum B,’ you can do this by processing an unscheduled pay run. For more information, read this article on how to adjust the lump sum value for unused leave.
- Terminated employees can be finalised under STP Phase 1 if they have not yet been transitioned to Phase 2. All you have to do is process their STP finalisation separately to the rest of your active employees.
- If you have terminated any employees on or before 30 June 2023 who need Fringe Benefit Tax (FBT) amounts reported, you can use the toggle ‘Show terminated employees for RFBA’ at the bottom of the STP finalisation page.
- If you started using Xero part way through the financial year and need to report employee opening balances through STP, take a look at our support article on transferring payroll balances to Xero Payroll.
- Any Employment Termination Payments (ETP) that have been processed will show on the STP finalisation screen, as well as any lump sum payments.
- You can export a copy of the information to be filed with the ATO by selecting an employee’s name and clicking Export, then CSV from the Review tab in the finalisation screen. You can also export an employee’s summary individually.
- If your organisation is reporting under STP Phase 2, the CSV report you download from the finalisation screen will show disaggregated amounts (e.g. gross earnings, overtime earnings, bonuses and commissions) for each employee.
That’s it – you’re all organised!
Now you can rest easy knowing that your payroll year-end is complete.
Looking ahead to FY24, pay runs with a payment date on or after 1 July 2023 will be processed in the next financial year, and any new tax rates will be applied automatically. The Super Guarantee (SG) rate is also increasing from 10.5 percent to 11 percent on 1 July 2023 for the 2023/24 financial year. Pay runs with a payment date of 1 July 2023 or later will have the new rate automatically applied in employees’ payslips, as long as their superannuation line has been set up with a Rate Type of Statutory Rate.
If your organisation is impacted by changes to the minimum wage, you will need to manually update your employees’ pay templates. You can learn how to create or edit a pay template for an employee by checking our Xero Central article. To find out if these changes could affect you, please refer to the Fair Work Ombudsman.
Looking for more information? Check out our EOFY Resource Hub for everything you need to know (and do) to round out FY23, and set up strong for the new year ahead.