3. Review Pay Categories

Review your pay categories and make sure you applied the correct classification. As part of STP Phase 2, the ATO has new regulations around the disaggregation of gross income, so it is important to make sure that your pay categories are classified appropriately as per ATO requirements.

To do this you will need to navigate to Payroll Categories under Payroll Settings:

For each pay category, ensure that the correct payment classification is listed:

PAYG Exempt pay categories:

You normally categorise a pay category set to be PAYG exempt as something other than Default in the Payment Classification field in the pay category settings, for example, Allowance or Lump Sum as two possibilities. You would do this because it is considered PAYG-Exemptearnings tax-free for a particular reason.

If you select the Default option in the Payment Classification field for PAYG Exempt earnings, then your STP finalisation reconciliation will show a variance equal to the amount paid using this pay category. The reason for this is that earnings will not appear in the Taxable Earnings total in the payroll Year to Date (YTD) section.

However, they will appear in the Payroll Gross Earnings total in the STP YTD section.

Special note on JobKeeper and JobMaker:

Provided you have set up JobKeeper and JobMaker payments correctly, they will report and appear correctly, respectively. The correct STP classifications are applied if you are using the system-generated JobKeeper/JobMaker pay categories already and no further audit will be required.