This article applies to any business with 19 or less employees that pay closely held payees and who must report STP events for closely held employees from the 1st of July 2021.  A closely held employee (payee) is one who is not at arm’s length; i.e., it means something directly related to them, to the entity from which they receive payments. Examples include:

• Family members of a family business.
• Directors or shareholders of a company.
• Beneficiaries of a trust.

If you are unsure of whether you need to consider any employee in your business as a closely held employee, you will need to get advice from the Australian Tax Office (ATO).

What are the STP reporting options for closely held employees?

First, to clarify, businesses that have a combination of closely held employees and non-closely held employees, i.e., arm's length employees must report their arm's length employees by each payday. This requirement has been in place since the 1st July 2020. This article will specifically discuss how to manage closely held employees. Employers can choose to report amounts paid to closely held employees through STP in any of the following ways:

Option One

Report actual payments on or before the date of payment. Whenever you process a pay for a closely held employee, report the information on or before each payday, you will use the same process for reporting arm's length employees.

Option Two

Report actual payments quarterly. Report your actual payments to closely held employees on a quarterly basis, when the Business Activity Statement (BAS) is due.

Option Three

Report a reasonable estimate quarterly. Report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.

Example one

Example two

What must you report for a closely held employee?

Like all Single Touch Payroll (STP) reporting for arm's length employees, you must include:

• Year-to-date amounts for each closely held employee who received a payment subject to withholding that is required to be reported via STP.
• Ordinary times earnings (OTE) or your superannuation liability for the employee
• Total gross wages for payments being reported and use the same as the W1 label on your activity statement.
• Total PAYG withholding payments being reported and use the same as the W2 label on your activity statement.

You must report on:

• Reimbursements where you expect to spend the amount in full.
• Dividends.
• Trust distributions.
• Loans.

Option 1: Report payments on or before the date of payment

If you choose to report amounts you pay to your closely held employees on or before payday, the general STP reporting rules will apply. You can find Instructions on how to report STP in this scenario:

• Here, when reporting a pay event; or
• Here, for reporting an update event.

If a closely held employee is to be reported on or before each payday, navigate to the employee's STP income types on the employee's Pay Run Defaults page within their personnel file on the Payroll classic platform and then select the Closely Held Employee option and choose the Report Employee Each Pay Run as the reporting method. As you would for your arm's length employees, you must still:

• Include any Pay as You Go (PAYG) withholding amounts on your activity statement and pay the amount you owe to the ATO by the due date.
• Make super guarantee (SG) contributions for your closely held employees before the quarterly due date.

Option 2: Report actual payments quarterly

If you choose to report actual payments on a quarterly basis, your quarterly STP report is due on or before the due date for your quarterly activity statements. Including concessions that may apply to your circumstances. 

If you report your PAYG withholding on monthly activity statements, your quarterly STP report is due on the same day as your activity statement for the final month of the quarter. The amounts you report to the ATO for this option will be the total, i.e. Year to Date (YTD) of all amounts processed in finalised pay runs, up to the last date paid for the applicable quarter reported.

• For example, if you are reporting an STP event for the July to September quarter, the amounts you will report for the closely held employee include reportable amounts added in all finalised pay runs with a date paid from the 1st July up to the 30th September for that financial year.
• Then, when you report an STP event for the October to December quarter, the amounts that you will report for the closely held employee include reportable amounts added in all finalised pay runs with a date paid from the 1st July up to the 31st December for that financial year. 

Choosing to report STP on a quarterly basis does not change the due date for:

• Reporting and paying your PAYG withholding on your activity statement
• Making Super Guarantee (SG) contributions for your closely held payees.

To set up your closely held employees on a quarterly reporting frequency:

• Navigate to the employee's STP income types found on the employee's Pay Run Defaults page in their personnel file on the Payroll classic platform.
• Select the Closely Held Employee option and then select the Report Employee on a Quarterly Basis as the reporting method.

Existing employees, as of the 20th of August 2021, who have the Closely Held Employee checkbox ticked will auto-update to this setting. Selecting this option excludes the employee from appearing in standard pay events, update events, and finalisation events. Rather, the reporting of closely held employees is separate from at arm's length employees. You can find here instructions for reporting closely held employees on a quarterly basis.

Option 3: Report a reasonable estimate quarterly

If you choose to report using this method, you need to:

• Make a reasonable estimate of the amounts you have paid to closely held employees during the quarter.
• Enter these estimates into a pay run and make sure the pay run is finalised and has a date paid by the last day of the quarter; and then 
• Report that estimate through STP.

As the estimate is based on payments you have made to your closely held employees, you should:

• Report and pay your PAYG withholding on your activity statement based on your estimate
• Make SG contributions for your closely held payees based on your estimate.

The amounts reported to the ATO for this option will be the total i.e. YTD of all estimated amounts processed in finalised pay runs, up to the last date paid for the applicable quarter being reported.

• For example, if you are reporting an STP event for the July - September quarter, the estimated amounts reported for the closely held employee will include reportable amounts included in all finalised pay runs with a date paid from the 1st July up to the 30th September for that financial year.
• Then, when reporting an STP event for the October to December quarter, the estimated amounts reported for the closely held employee will include reportable amounts included in all finalised pay runs, with a date paid from the 1st of July up to the 31st December for that financial year. 
• Advice on how to determine a reasonable estimate and make corrections to estimates is on the ATO website.

Choosing to report STP on a quarterly basis does not change the due date for:

• Reporting and paying your PAYG withholding on your activity statement.
• Making SG contributions for your closely held payees.

To set up your closely held employees on a quarterly reporting frequency:

• Navigate to the employee's STP income types (found in the employee's Pay Run Defaults screen in their personnel file on the Payroll classic platform)
• Select the Closely Held Employee option and then select the Report Employee on a Quarterly Basis as the reporting method.