SINGLETOUCHPAYROLLSmallBusinessPilot

FinalReportJune2017

NOT FOR FURTHER CIRCULATION UNTIL RELEASED EXTERNAL

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Contents1 Executivesummary 3

1.1 Overview 31.2 Keyfindings 31.3 Recommendations 4

2 TheSingleTouchPayrollprogram 6 2.1 Backgroundandintent 62.2 Benefits 7

3 Smallbusinessmarketandpayroll 8 3.1 Marketprofile 83.2 Payrollandreportingsoftwareusage 83.3 Otherdigitalcapabilities 113.4 Roleofintermediaries 123.5 Behaviouraldimensions 12

4 Smallbusinesspilotapproach 13 4.1 Pilotobjectives 134.2 Approach 144.3 Somelimitations 15

5 Pilotlearnings 15 5.1 Overallinsights 155.2 Employerswithnopayrollsoftware 185.3 Solutionprovidersandtheirclients 205.4 Taxpractitionersandclients 215.5 $100Taxoffset 22

6 Learningsfromotherimplementations 22 6.1 UKexperience 226.2 NewZealandexperience 246.3 SuperStreamexperience 25

7 Gettingthebasicsright 26 7.1 Amandatetodrivechange 267.2 Supportingmanycustomerjourneys 267.3 Diverseandinnovativesolutions 277.4 Pro-activemarketingandcommunications 287.5 Buildingtrustandconfidence 29

8 Bridgingthegap 30 8.1 Providingatargetedincentive 308.2 Workingwiththedigitallydisengaged 308.3 Helpingruralandremoteusers 328.4 Levellingtheplayingfield 32

9 Implementationscenario 33 9.1 Amodelimplementationscenario 33

Appendix1–Participantsselection 35 Appendix2–Consultationgroup 36 Appendix3–Userpathwayslist 37 Appendix4–Samplecustomerjourney 38 Appendix5–Ruralandremoteregions 39 Appendix6–Keyreferences 40

Final v1.2

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1.1 OverviewSingleTouchPayroll(STP)wasannouncedbythecurrentgovernmenton21December2015asameansofsimplifyingtaxandsuperannuationbusinessreporting.ThethenSmallBusinessMinisterandAssistantTreasurer,MinisterKellyO’DwyerannouncedtheATOwouldundertakeapilotwithsmallbusinesseswith19orlessemployeestodemonstratederegulationbenefitsandmakeadecisionontimingforrollingoutSingleTouchPayrollreportingforsmallemployersafterthepilotiscompleted.

Duringthefirstpartof2017,theATOengaged134smallemployersalongwithsoftwaresolutionprovidersandtaxpractitionersinarangeofpilottests,simulations,prototypingexercisesandinterviews.Inaddition,theATOundertookresearchandanalysisofthesmallbusinessmarket,softwareprovidermarketandtrendsindigitaltake-upinAustralia.ThesmallbusinessexperienceofsimilarimplementationsintheUK(PAYEReal-timeInformation),NZ(PAYEReporting)andAustralia(SuperStream)werealsoreviewedforlessonslearned.

1.2 KeyfindingsThepilotandassociatedresearchconfirmedthatmostsmallbusinesseswillfindtheycanimplementSingleTouchPayrollwitharelativelymodestamountofeffortandcost.Theexistingpayrollsoftwareusergroup(about320,000businesses–45%)willtakethischangelargelyintheirstride,whilethosewithmorepiecemealreportingsolutionswillfacealargerchangetask(about292,000businesses–41%).

Althoughonlylimiteddirectbenefitsareexpectedforsmallbusinessinitially,thechangewillbringmajorimprovementstosystemintegrityandtransparency(especiallyforsuperguarantee)whilealsocreatingabuildingblocktoenablefurthergovernmentreportingreductioninyearstocome.

Overall,thebenefitstoemployerslieinimprovementstotheemployeecommencementandreportingeffort,leveragingtheemployer’spayrollprocesswhereverpossible,earlierandmorehelpfulinterventionbytheATOinhelpingsmallbusinessmanageemergingcashflowissuesandthecompliancebenefitswhichwillflowfromamorelevelplayingfieldforemployers.Employeeswillgainnewtransparencyovertheirpayasyougo(PAYG)withholdingtaxpositionandsupercontributionsasreportedbyemployerseachpayday.

Thepilotidentifiedaseriesofpotentialbarrierstoimplementationrelatingtocost,trustandconvenienceissues.Thesebarriersaregenerallynotsignificantfortheexistingpayrollsoftwaregroupofemployers,areofmoderateconcerninthereportingsoftwarespacebutarecentredstronglyinthecurrent‘nosoftware’group.

Wehaveconcludedthatasmallbutsignificantminorityofsmallemployers-lessthan10%ofthesegment(around70,000)-willlikelystrugglewiththeimplementationintheabsence

1 Executivesummary

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ofhelpandsupport.Dependingonthesolutionpathwayabusinesstakes,theyarelikelytofindthechangeeffortandpotentialcostsignificant.Ourresearchhighlightsthatmanyofthesebusinesseslacktherequireddigitalskills,havepoorinternetconnectivity,arereticentaboutworkingonline,orsimplyneedahelpinghandtoembraceandtacklethischange.

TherearearangeofstrategiesandtoolswhichtheATOcanuse,inconcertwithstakeholders,tobridgethecapabilityandconfidencegaptheseemployersface.Intermediaries,suchasbookkeepersforexample,willplayaveryimportantroleinadvisingemployersinthissegmentandassistingwiththeintroductionofSingleTouchPayrollsolutions.

Basedonsimilarimplementationexperiencehereandoverseas,itisreasonabletoexpectthatnotallsmallbusinesswillbeabletomakethetransitiontoSingleTouchPayrollbymid2020.Butthisisnoreasonnottoaimhigh.TheATOwillencouragesmallstepchangeevenwheremicrobusinesses(lessthan5employees)facesignificanthurdlesandtrytocreateavenuesforthistobeapreludetoamorefulsomemovetowarddigital,paydayreporting.Whereneeded,limitedreliefintheformoftemporaryextensionsforsomemicrobusinessescanbeexercisedbytheCommissionerofTaxationbydrawingontherelevantpowershehasathisdisposal.

Afinalgroupofemployersposeadifferentchallenge.Theyaresmallbusinesseswithconsistentlypoorcompliancehistory,continuingbaddebtperformanceorfraudulentclaims.WiththeintroductionofasmallbusinessmandateforSingleTouchPayroll,theywouldcomeunderchangedarrangementsandshouldberequiredtoconformattheearliestpossibledatewithregular,pay-daybasedreportingintheapproveddigitalchannel.Moreregularpaymenttermscouldalsobeconsidered.Thiswillhelpaddressthe‘levelplayingfield’issueupfront,ratherthanallowingittoundermineconfidenceintherationaleforimprovedtransparencyandtimelinessofreporting.

Alegislativemandateforsmallbusinesswillinitiatethestepsrequiredtoachievealargescaleshifttonearreal-timereportingonPAYGwithholdingandsuper–which,iflefttovoluntarydevices,wouldproveelusive.Notonlywillamandatesendaclearsignaltosmallbusinessownersaboutthedirectionandtimingofchange,butsimilarlywillhelpgalvanisetheinvestmentsandprioritiesofsolutionprovidersandintermediarieswhowilldrivemuchofthischange.Awell-staged,properlysupportedimplementation,withtheclosecollaborationofsolutionprovidersandintermediaries,isachievablebutonlywithcleardeadlines,transitionplansandultimately,clarityonsanctionsfornon-compliance.

1.3 Recommendations1. AlegislativemandaterequiringimplementationofSingleTouchPayrollshouldbe

introducedforsmallbusiness(with19orlessemployees)with:

• anoperativedateof1July2019fromwhichsmallbusinessmustcomply

• atransition-inperiodoftwoyearsincludingavoluntarytake-upperiodof12monthsleadingupto1July2019,followedbygraceperiodforthenext12months

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• anon-flexiblestartdateof1July2019forsmallbusinesseswithasubstantialandrepeatedhistoryofpoorcompliancewithsuperguaranteeorPAYGwithholding(i.e.nograceperiodapplies).

2. TheATO,incollaborationwithindustryandcommunitystakeholders,developanddeliverapro-active,welltargetedcommunications,helpandsupportcampaignwithparticularfocusonsmallbusinesseswith:

• lessthan5employeesandnotalreadyworkingwithpayrollorreportingsoftware

• littleornodigitalcapability

• inrural/remoteareaswheredigitalconnectivitymaybeaconstraint

• infrequentorirregularemploymentarrangements.3. TheATOcontinueitsworkwithdigitalserviceproviders,innovativesolutionproviders

andintermediariestoensurethatarangeoflowcost/nocostsolutionsforreportingunderSingleTouchPayrollareavailableinthemarketformicrobusinesses.

4. Attheendofthetransition-inperiodtheATO,withinputfromtheAustralianSmallBusinessandFamilyEnterpriseOmbudsman,assessthosestillnotcompliantwithSingleTouchPayrollandreporttogovernmentonstrategiesfordealingwiththoseremainingbusinesses.

5. Inordertobuildconfidenceintheimplementationandencourageearlytake-up,theCommissionerofTaxationshouldsetoutaclearundertakingtosmallbusinessassuringthemofapositiveclientexperienceiftheydotherightthingunderthenewreportingregime.

6. Asapartialoffsetforthecostsofimplementationandencouragementforearlytake-up,atargetedincentiveshouldbeconsideredformicrobusinesseswithlessthan5employeesthatimplementSingleTouchPayrollbefore1July2019.Thenatureandformofthisincentiveshouldbeexploredfurtherwithaviewtoreplacingthepreviouslyannounced$100TaxOffset,noting:

• theincentiveshouldbeavailablewithlittleornoadditionaladministrativeeffortbysmallbusiness

• theschemeshouldapplyappropriateanti-fraudcontrolsasameansofpreventingillegitimateclaims.

7. AllSingleTouchPayrollsolutionsshouldbecertifiedforcompliancewithSingleTouchPayroll,buildingontheprocessalreadybeingdevelopedforthesubstantialemployerroll-out,andensuringthereforethatsmallbusinessemployerscanaccessasimple,easytosearchonlinedirectoryofcertifiedsolutions.

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2.1 BackgroundandintentSingleTouchPayrollwasannouncedbythecurrentgovernmenton21December2015asameansofstreamliningtaxandsuperannuationbusinessreporting.SingleTouchPayrollseekstoalignreportingtogovernmentwiththeroutinecycleofpayrollruns(‘payday’)ineachbusinessandreducetheneedforseparatereportingprocesses.TheuseofSingleTouchPayrollenabledsoftwareshouldenhancetheefficiencyoftheseprocesses.Thischangehasbeenmadepossiblebytheconvergenceofadvancesinpayrollandrelatedsoftwaretechnology,thegrowingdigitalcapabilitiesofgovernmentandacommitmentbygovernmenttolightertouchregulatoryapproaches.ThekeychangesintendedunderSingleTouchPayrollinclude:

• employerswouldautomaticallyreporttheirPAYGwithholdingstatustotheATOatthesametimeastheirpayrollcycleusingStandardBusinessReporting(SBR)software

• superannuationcontributionswouldalsobereportedtotheATOwhenpaymentsaremadetosuperfunds

• employerswouldhavetheoptiontopaytheirPAYGwithholdingatthesametimetheypaytheirstaff

• astreamlinedprocesswouldbeintroducedforindividualscommencingemploymentwiththeoptionofcompletingtheirtaxfilenumber(TFN)declarationandSuperannuationStandardChoiceformonlineusingmyGovorthroughtheiremployer’sbusinessmanagementsoftware.

Toaddressconcernsexpressedbysomestakeholdersintheearlyphaseofpolicydevelopment,MinisterO’Dwyeralsoannounced:

• theATOwouldconductapilotinthefirsthalfof2017todemonstratethederegulationbenefitsforbusinesses,withafocusonsmallbusinesses,tomakesurewegetitright

• theGovernmentwouldmakeadecisionontimingforrollingoutSingleTouchPayrollreportingforemployerswith19orlessemployeesafterthepilotiscompleted.

Toassistwiththetransition,theGovernmentalsoannounceditwouldprovidebusinesses,withaturnoveroflessthan$2million,a$100non-refundabletaxoffsetforSBRenabledsoftware.

2 TheSingleTouchPayrollprogram

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2.2 BenefitsInhighlevelterms,SingleTouchPayrollwillprovideemployerswiththefollowingbenefitsovertime:

• streamlinedreportingofPAYGwithholdingandSuperannuationGuaranteeinformationbyleveragingtheemployer’spayrollprocess

• improvementstothePaymentsummaryprocess• pre-fillingofPAYGwithholdinginformationintotheBusinessActivityStatement(BAS)

form• commencementformsbeingcompletedonlinebyemployeeswithmorereliabledatafor

employers• alevelplayingfieldwhenitcomestopayingtaxandsuper.

Inmoredetailedandpracticalterms,SingleTouchPayrolldoesthisby:

• embeddingtheprinciplesofcontemporaryandefficientbookkeepingpracticesinasmallbusiness

• enablingseamless,highintegrityreportingtotheATObyutilisingthesamesoftwareanddatasourcerequiredtomaintainpayrollrecordsandperformcalculations

• relievingtheneedforsomebusinessestoprovidepaymentsummariestoemployeeswherethisinformationisprogressivelyreportedtotheATO

• makinganemployee’sPAYGwithholdingandsuperpositionviewableprogressivelythrough-outtheyearandthenatyear-endviathemyGovportal1andviaanemployee’staxagent’ssoftware(theATOwillpre-fillthisinformationasanemployerreportsoneachpay-dayandwithanend-of-yearadjustmentasneeded)

• pre-fillingofkeyvaluesintheBASrelievingbusinessesfromhavingtoprovidePAYGwithholdingvaluesintotheBAS2–pre—filledbytheATOfromthepriorreportingofthebusiness

• facilitatingregularpaycyclepreparationandreportingofwages,PAYGwithholdingandsuper,butwithflexibilityforthebusinessownerofwhenPAYGwithholdingorsuperpaymentsaremade

• othermodulesofSingleTouchPayrollwillalsoprovideamoreefficient,lesserrorpronewayoflodgingTFNdeclarationandSuperChoiceformsonline.

SingleTouchPayrollalsosetsuptheplatformtorealisefuturebenefits–muchlargerinsize-asthisinitiativeexpandsinplannedlaterstagestootheremployerobligationburdens,suchaspayrolltaxandchildsupportpayments.ThroughSingleTouchPayroll,governmentgainsvisibilityoverthecompliancebehaviourofallemployersinrespecttopayingtheirPAYGwithholdingandsuperobligationsandofemployeesinrespectofpossiblebenefitsoffraudoroverpayments. 1 The application providing this information is ATO online which is accessible by individuals via myGov (the whole of government portal). 2 This pre-fill change is intended to be supported by a Commissioner’s Guarantee that the information is based on the PAYG withholding reports provided previously by the business during that BAS period and that any errors/omissions caused by the ATO will not be the responsibility of the employer. Pilot participants noted they were likely to check this for the first few BAS cycles and then not continue to do so as their confidence in the process grew.

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3 Smallbusinessmarketandpayroll3.1 MarketprofileThesmallbusinesspopulationisalarge,diversemarketmadeupofaround749,051employers.Inpayrollterms,itcanbebrokendownintothefollowingsizesegments:3

Theoverallsizeofthispopulationisrelativelystableovertimealthoughyearonyearthereisconsiderablechurnwitharound8-10%ofbusinesseseitherenteringasnewemployersorceasingtobeanemployer.4Everysmallbusinessisdifferent,sothisshouldnotbethoughtofasahomogeneousorone-sizefitsallgroup.Size,industry,legalstructure,location,employmentmix,seasonalfactorsandoperatingmodelallhaveaninfluenceonthepostureandcapabilityofanindividualsmallbusiness.

3.2 PayrollandreportingsoftwareusagePayrollandaccountingrelatedsoftwareusageinthesmallbusinessmarketisbroadlysplitthreewaysbetweenbusinesseswithpayrollsoftware;thosewithotherreportingsoftware;andthosebusinesseswithnoknownpayroll/reportingsoftwareaccess.5Withineachofthesecategories,businessesmayoutsourcetheirpayrollfunction(inwholeorpart)andmayuseanaccountantorbookkeepertoassistwithpayrollandreporting(inwholeorpart).6

3 This data is sourced from ATO employer records and may differ slightly than ABS data due to timing and classification differences. ‘New entrants’ (27,492) are new employers who have recently registered or become visible to the ATO in the current period and do not yet have a known size profile. They are excluded from the detailed profiling analysis which follows. 4 This is not necessarily the same as ceasing business as they may, for example, be changing status to non-employing. 5 Many ‘manual’ payroll use excel spreadsheets and internet banking portals for electronic payments to assist with the process. 6 For brevity’s sake, these states are called ‘self-service’ where an employer has in-house software or subscribes to cloud services; ‘outsourced’ where the payroll function is performed by a service provider; or ‘assisted’ where an agent assists with payroll or reporting preparation.

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Usingthiscategories,smallbusinessescanberatedbyhowtheycurrentlyutilisetheseservices:

Employerprofile No.ofemployees 1-2 3-4 5-9 10-19 Total Share

Payrollsoftware Self-service 67,267 41,597 65,324 78,308 252,496 35%Outsourced 4,041 2,691 4,738 6,712 18,182 3%Assisted 22,059 10,438 13,179 11,767 57,443 8%

Subtotal 93,367 54,726 83,241 96,787 328,121 45% 28% 44% 59% 77% 45%

Otherreportingsoftware7 Self-service 78,166 24,496 22,679 12,144 137,485 19%Outsourced 6,993 1,932 1,566 720 11,211 2%Assisted 91,834 24,403 18,853 7,845 142,935 20%

Subtotal 176,993 50,831 43,098 20,709 291,631 40% 54% 41% 30% 17% 40% Nopayroll/reportingsoftware

Ownermanager 18,045 240 12 0 18,297 3%Noknownaccess 42,198 17,850 15,822 7,640 83,510 12%

Subtotal 60,243 18,090 15,834 7,640 101,807 14% 18% 15% 11% 6% 14% TOTAL 330,603 123,647 142,173 125,136 721,559 100%

100% 100% 100% 100% 100%

Ofthetotalsmallbusinesspopulation,45%areusingpayrollsoftwareintheirbusinessdirectlyorbyworkingwithabusinesspartneronthisfunction;another40%useotherreportingsoftwaresuchasforBASlodgmentsorhavehadexperiencewithpayrollsoftware8orelectroniclodgments(oftenworkingwithabusinesspartner);andaround14%appearnottobeusingpayrollorreportingsoftwareatall.Notsurprisingly,significantvariationsexistinpatternsofuseandITcapabilitybetweensizeofbusiness.Inthesmallestofmicrobusinesses(1-2employees),upto18%ofemployersdonothavepayroll/reportingsoftwareaccess-althoughthisreducestoonly13%whenowner/managersareexcluded.Atthelarger10-19employeeend,about6%ofemployersarewithoutaccess.Itshouldberecognizedhoweverthatmanyemployerswhichpresentashaving‘nosoftware’willstilluseexcelspreadsheetsinternallytotracktime,payandotherobligations(officesoftwarewithcustombuiltroutinesandcalculations). 7 This is a broad-ranging category which includes employers who currently use BAS or tax agents for reporting some obligations, use the ATO business portal in their own right, have an AUSkey or have previously lodged with payroll software but have stopped in the most recent annual period. So they currently have working familiarity with electronic lodgment with the ATO (albeit that experience may be via an agent) or with payroll software but they may not currently share any pay day data at an individual level with these agents and will have to choose between various possible upgrade paths to become STP compliant. 8 Operating often with unsupported versions of payroll software or hand-crafted excel products; these usually lack integration with messaging or reporting style applications although upload or integration links to third party products are widely available.

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ThedifferencebetweenemployerswithpayrollsoftwarecapabilityandreportingsoftwarecapabilityhighlightsadifferentstartingpointfortheirrespectiveSingleTouchPayrollimplementations.

FeaturesofthepayrollsoftwaresegmentPertinentfactorsforasmallbusinessengagingwithapayrollsoftwaresolutioninclude:amIonthecurrentsoftwareversion,doIpreferacloud-basedproductoraninstalledsoftwarelicense,doesmyvendorhaveSBRreportingcapabilityintegratedwithitsproduct(andifnot,howwillIengageareportingsolution),howlargeistheupdateorupgradeeffortrequired,whatamIpreparedtopayandwhatifanythingneedstochangeinmybusinesspracticestogettheoptimumbenefitfromSingleTouchPayroll.Whilethesmallbusinessendofthepayrollsoftwaremarketisdominatedbythreemajorplayers(78%shareoftheinstalledmarket)–thereareawiderangeofnicheandboutiquesupplierswithindustry,functionalorotherspecialistclientbases.

Featuresofthereportingsoftwaresegment‘Reportingsolutions’refertoabroad-rangeoftax,superorpaymentreportingsoftware.Whilethereportingsoftwaresegmentincludessomesoftwareproductsinstalledinsmallbusiness,thismarketmostlyinvolvesbusinessesaccessingproductsviaaportalorthirdpartyhostedservices.Therearethreemainsolutiontypesasdescribedbelow.SomeproductsareunlikelytomigratetowardsaSingleTouchPayrollstyleoffering,whileothersarehighlylikelyto.1. BASreportingtypesoftwareincludingthatcurrentlyusedbyBASagentsandBAS

reportingbyemployersthemselvesvialodgmentintheATObusinessportal9(over35%ofsmallbusinesscurrentlyreportPAYGwithholdingusingthesechannels).

2. ClearinghouseandsuperreportingsolutionswhichgrewrapidlyduringtheSuperStreamimplementationandcurrentlyhandleover70%ofallemployercontributionreportingtosuperfunds.Theleadingplayersinthismarkethaveexistingprocessesforconnectingwithpayrolldataextractsandsubstantialcapacitytomodify/growtheirsolutionsiftheychoosetodoso.

3. Paymentplatformsoperatedbythebanksand(evolving)newfintechcompanies.The

banks,forexample,provideinternetbankingfacilitieswhichmostsmallbusinessusecurrentlyforpayingsalariesandwages.ThiswouldseemasuitableplatformforextendingpaydatacaptureandprovidingautomatedreportingtotheATOorotherdestinations.

Pertinentfactorsforasmallbusinessengagingwithafuturereportingsoftwaresolutioninclude:doesmycurrentproviderhaveamigrationorupgradepathtoSingleTouchPayrollordoIneedtoswitchtoanewsolution,doesmyproviderhaveSBRreportingcapabilityintegratedwiththisupgradepath(andifnot,howwillIengageareportingsolution),what

9 The ATO business portal does not have a planned upgrade/migration path to Single Touch Payroll

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thismightmeanforfrequencyofinteractionsandcost,andwhetherIshouldmovetoapayrollsoftwarebasedsolution.

3.3 OtherdigitalcapabilitiesBeyondjustafocusonpayrollsoftware,smallbusinesshasshownsubstantialgrowthinacquiringawidesetofbasicdigitalcapabilities,particularlyoverthelastfive-to-sevenyears.Allofthesehaverelevanceinunderstandingtheirdigital‘capacity’forchangeinSingleTouchPayroll.Thegreatmajorityofsmallbusinessnowoperateatleastsomepartofthebusinessovertheinternetorwiththeuseofin-housesoftwaretools.Manyalsopartnerwithotherswhoassistwiththesetasksontheirbehalf.Asthetablebelowillustrates,digitalcapabilityisnowquitepervasiveinsmallbusiness10.Thecombinationofcomputers,newmobiledevices,internetaccess,electronicpaymentoptionsandweb-basedtransactionsprovidemultiplepathwaysbywhichbusinessescanandareadaptingtodigitalmodesofwork.

Smallbusiness–digitaltrendsinAustralia

Source: See footnote below.

Thesenewmodesofworkarealsocreatinghooksonwhichnewproductsandservicesarebeingbuilt.Applicationsarebeingsimplifiedtobehostedonsmartphones,formsdataisbeingpre-filledandITinfrastructureisbeinghostedandsupportedbyoftenfamiliarbusinesspartners–telcos,banks,globalsoftwarecompaniesandothers.Payrollandreportingsoftwareisnowadaptingtothisnewenvironmentandnewwaysofdeliveringthisfunction/service,ofteninsimplifiedandlowcostmodels,areemerging.

10 All data is for businesses with 0-19 employers unless otherwise noted. Basic capabilities: (1) ABS Data Series No. 8166000091 (2014-15); (2-4) Sensis e-Business Report 2015. Sensis data has been re-baselined to an index year of 2015; all 2017 data from (1-4) is an ATO estimate based on series trend; Tax & super interactions: (5, 7-9) ATO Employer Master Data File (2017); tax agent as a digital proxy for small business as nearly all agents interact digitally with the ATO; (6) SuperStream data is from ATO unpublished program data.

Smallbusiness-digitaltrendsinAustralia2012 2015 2017

Broadband 1 92% 94% 95%Smartphone 2 47% 63% 83%Internetbanking 3 72% 75% 75%Email 4 77% 78% 78%

Usesataxagent 5 91% 93% 95%

SuperStreamsolution 6 15% 25% 95%

BASlodgedelectronically 7 48% 71% 79%

Payrollsoftware 8 25% 34% 42%

TFNlodgedelectronically 9 n/a 9% 24%

Tax&superdigitalinteractions

Basicdigitalcapabilities

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Whilethereremains5-10%ofsmallbusinesseswhoareeitherresistanttomovingintothedigitalworldorneedfurtherconvincingofthebenefitsitcanprovide,thisgroupisdiminishingovertime11;whilenewandinnovativewaysofhelpingthesebusinessescopewithtechnologychangearegrowing.

3.4 RoleofintermediariesApartfrompayrollsoftwaresuppliers,intermediariesintheformofpayrollbureaux,clearinghouses,accountants,BASagentsandbookkeepersplayacriticalroleinoutsourcedpayrollservicesorbyassistingsmallbusinessmeettheirtaxandsuperobligations.Theserolesvarysignificantlybythenatureofthetasks/obligation,thesizeofbusinessanddispositionofthebusinessowner.Astheearlierfiguresinsection3.2demonstrate,around32%ofbusinesses(229,771)arereliantonanintermediaryorservicepartnerforpayrollorreportingpurposes.Manyoftheseprovidersareabletoofferscaleand/orexpertisewhichrelievesthemoftheITandprocessingeffortinvolved.Howeverfullyoutsourcedpayrollandadvisorycostscanbesignificantforsmallbusiness12.Theassistedserviceareaisheavilyrelieduponacrossallsegmentsbutpeaksinthemicroendwherearound9inevery10smallbusinesseswhoseekexternalsupportinthisarearelyonanaccountant,BASagentorbookkeeper.Itisonlyinthelargerendofsmallbusiness(10-19employees)thattheroleofoutsourcedservicesissignificant(usedbyaround25%).TheseserviceentitiescanbeexpectedtoplayaveryimportantroleinmovingsmallbusinesstowardsadoptionofSingleTouchPayroll.

3.5 BehaviouraldimensionsThemarketattractiveness(orotherwise)ofpayrollproductsandservicesisafunctionoftheircost,functionalityandcomplexityrelativetoanemployer’sbusinessneed,capabilitiesandresources.Inotherwords,costandfunctionalityisnottheonlydriverandthedifferentneedsandoutlookofindividualbusinessesneedcarefulconsiderationinunderstandinglikelymarketresponsestochange.Whilepayrollsoftwarehasbeenwithinthereachofsmallbusinessesforaroundtwodecades,changeandinnovationinthepayrollandalliedmarketiscontinuous.Forexample,overthelast3-5yearssignificantchangeshaveoccurredfrom:

• cloud-basedtechnologieswhichreducethefootprintandexpertiserequiredinsideasmallbusinesstorunpayrollsoftware

• newmessagingandpaymentserviceswhicharelinkingpayrolltodownstreamserviceslikesuper,insurance,healthbenefitsandgovernmentreporting.

WhilethesechangesarecreatinganewcohortofhighlyITenabledbusinessesinthesmallbusinessmarket,notallemployersseethesechangesfromthesameperspective.

11 For example, the 45-plus age group represents over 80% of micro-business owner/managers (Employer Master file, ATO, 2015). 12 For example, see the skew towards higher average costs per employee of payroll outsourcing for small business documented in the 2016 Payroll Benchmarking Report (Australian Payroll Association, 2016), p.11.

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Forexample,inthemicroendofsmallbusiness(5orlessemployees),someownersdonotseetheneedtohavepayrollsoftwareintheirbusinessastheysayittendstobringunnecessarycomplexityandoverheadsfortheirsize13.Therelativelylowtake-upinthissegment14providesclearevidenceofthislowattractiveness.Whilepayrollsoftware/servicesaremakingsomeinroadstothissegment,thebusinessneedinthissmallestsizesegmentisarguablynotforpayrollsoftwarepersebutforalowcost,easilymaintainedandintuitivesolution15–andthemorethatsolutiondovetailswiththeotherbusinessneedsor‘naturalsystems’usedbymicrobusinesses,theeasierandmorecertainwillbethetake-upprocess.Inthesingleemployeebusiness,manyareowner/managers.Oftenthesearefamilytypebusinesses,orcloselyintegratedwiththeirhomeandpersonallifestyleneeds,oftenprovideonlypart-timeemploymentandtheirbusinesseshaverelativelylowsurvivalratescomparedtoothercohorts.Thiscolourstheiroutlookandtheirbusinessmodelswhich,amongstotherthings,areusuallyveryleanwhenitcomestotakingonoverheads16.Yetanothersub-groupofsmallbusinessesarequitescepticalonmattersdigitalandneedstrongencouragementorconvincing.Thishasbothculturalanddemographicdimensions.Withbigchangeinitiatives,changelikethistypicallytakessometime(18monthsuptoseveralyears).Ascriticalmassgrowsandsolutionadoptionincreases,themessagespreads(especiallyviapeernetworks)andconfidencegrows17.ThiswasthepatternintherecentSuperStreamimplementationwhichsawsoftwarebasedsolutionchannelsgofromastartingpointoflessthan15%ofthesmallbusinessmarketin2012toover90%in2017.

4 Smallbusinesspilotapproach4.1 PilotobjectivesThepilotwasdesignedtotesttheconceptofSingleTouchPayrollonreportingpayrollobligationsforsmallemployers.Thepilotobjectiveswereto:

• understandtheimpactofSingleTouchPayrollonthesmallbusinessuserexperience

• identifyandconfirmcost/benefitsofSingleTouchPayrollforsmallbusinesseswith19orlessemployees

• identifyanyblockersorconstraintsthatmightpreventsmallbusinessfromrealisingthesebenefitsandhowthesemightbeovercome.

13 Reported by some participants in the non-software user group of the pilot and confirmed in discussions with digital service providers noting the high drop off rates they experience in businesses trialing free versions of the software. 14 28% in the 1-2 employee segment, and 44% in the 3-4% in the 5-9% contrasts with the 77% in the 10-19 employee segment. 15 Even the word ‘solution’ pre-supposes the right answer to their business need. Processing employee’s pay, withholding and super, as well as making payments on various timelines, are not naturally linked activities. Other dependencies/relationships in a small business or with their current partners will influence how they perceive the best direction for change. Government needs to be ensure that it is not dictating a pre-defined ‘solution’ in that sense. 16 See Small Business Counts – Small Business in the Australian Community (Australian Small Business and Family Enterprise Ombudsman, 2016), Section 2.2, 5.2 and 6.1; 2014 Infusion Small Business Owner Attitudinal Segmentation Research Report (Infusionsoft, August 2014). 17 This is often referred to as the change adoption or technology diffusion curve where early adopters, set the scene for ‘the early majority to follow as solutions are proven, and then ultimately the late majority come in as critical mass and peer advocacy grows.

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4.2 ApproachThepilotwasconductedinthreestageswithabroadrangeofsmallbusinesses(19orlessemployees)inpartnershipwithsolutionprovidersandtaxpractitioners.Insightsweredevelopedfrominformationobtainedfromanumberofsourcesincludingsurveys,casestudies,proto-typingsessions,one-on-ones,focusgroupsandfacetofaceinterviews.ThesereportsarereferencedinfurtherdetailinAppendix6.Atotalof134pilotparticipantswererecruitedwithassistancefromanindependentagencytoprovidebroadcoverageofthesmallbusinesssector,developersandintermediaries.Smallbusinessuserswererecruitedagainstdemographictargetsforsize,segmentandcapability.

Non-softwareusersStage1ofthepilotfocusedonpaper-basedsmallemployerswhodonotcurrentlyusesoftware. Participantswereinterviewedina90minuteone-on-oneuserresearchsession.InterviewswereconductedattheATOCo-DesignCentresinBrisbaneandMelbourne,andtheATOOfficeinAdelaide,aswellasbusinesspremisesinthegreaterBrisbaneandMelbourneareas,andNewcastlebetween13-22September2016.Participantswereaskedabouttheircurrentprocesses,andwereguidedthroughanATOdevelopedpilotprototypeofwhataSingleTouchPayrollenvironmentmaylooklike.Benefitsandchallengeswerediscussed,aswellasimpactsontheircurrentbusinessprocessesifSingleTouchPayrollwasimplemented.

SolutionProvidersandclientsStage2ofthepilotfocusedonsimulatedrun-throughsofSingleTouchPayrollviatheirsolutionproviderswhichincludedpayrollsoftwareandbureauxserviceproviders.Simulationsweredevelopedtocoverfourkeylifecycleeventsincluding:• employeecommencement

• payrollreporting

• endofquarterBASpreparation

• endofyearpaymentsummaries.

Employers-Non-softwareusers

18 employers

Focus groups

One-on-one discussions

Employerspartneredwithsoftwaredevelopers

87 employers, 6 developers

Online portal

Focus groups

Prototypes

Webinars

Employerspartneredwithtaxpractitioners

39 employers, 22 practitioners

Webinars

Focus groups

One-on-one discussions

15

TaxPractitionersandclientsStage3ofthepilotusedfocusgroupsoftaxpractitionersandtheirclientstoexplorefuturestateuserpathwaysandallcomponentsoftheSingleTouchPayrolllifecycle.

4.3 SomelimitationsAnumberofkeylimitationsshouldberecognisedwithresearchandtestinginthistypeofenvironmentincluding:

• whilethesampleofparticipantsislargeenoughtodrawsomegeneralconclusionsaboutexpectedbehaviourofsmallbusinessunderSingleTouchPayroll,thesizeofindividualsub-groupsistoosmalltobeconsideredstatisticallyreliable

• notallindustryandsegmenttypescouldberepresentedduetotheverylargevariationintheseparameters(over60)

• notallrelevantusecasesassociatedwithimplementationcouldbetested• participantsmaybelimitedbytheirknowledgeofthefuturestateSingleTouchPayroll

requirements• participantsmaybeoverlypositiveinthesetypesofsessionssosometimesactual

behaviourmaybedifferentthanreported• thedifferencebetweentheimplementationexperience(transitionin)andsteadystate

operationsafterasettlinginperiodhavenotbeenteasedoutinthepilotinanydetail• thedatapresentedinthelearningssectionispreliminaryandsubjecttofurther

validation.

ThefeedbackframeworkanddatausedinthepilothavebeenindependentlyassuredbyPricewaterhouseCoopers(PwC,May2017)and,subjecttotheselimitations,hasbeenfoundtobeaccurateandreasonable.

5 Pilotlearnings5.1 OverallinsightsFindingsfromthepilotindicatethefollowing:

• overallparticipantswerelargelypositivetowardstheconceptofSingleTouchPayrollwiththemajorityofbusinessesacknowledgingtherewouldbebenefitsandtime-savings(timesavingsweretiedtoincreasedelectronictransactionsandself-serviceforemployees).Asignificantproportionalsohighlightedsomenegatives,includingpotentialbarriers

• responseswerenotuniformandtendedtoreflectthecurrentcapabilityandpositionofeachbusiness.

16

Thekeybenefitsparticipantssawareasfollows:

• thosebusinessesthatalreadyusepayrollsoftwareadvisedthattheythoughtthere

wouldbeminimalimpacttomeetingSingleTouchPayrollreportingobligations• employersthatdonotusepayrollsoftwareconfirmedthattheirexistingpayrollprocess

createdthereportingdatarequiredforSingleTouchPayrolland,basedonwhattheywereshown18,thiswouldnotbeabigimpostdependingonhowtheywouldberequiredtoreport

• whilesomeemployerssawtheopportunityforreducedquestionsfromemployeesthroughemployeeaccessofmyGov,anumberalsoraisedconcernsabouttheusageandusabilityofthisfacilityandidentifiedtheneedforsubstantialsupportandeducationforemployeeswhenmyGovisusedforSingleTouchPayroll

• someparticipantssaidthatthepre-fillingofPAYGwithholdingdataintotheBASwouldbeapositivechangealthoughmanyalsonotedtheywouldstillwanttoconfirmthefiguresforaninitialperiodandthatpre-fillwouldnotprovideamaterialtimesaving

• non-softwareuserswereconcernedaboutthecostofpurchasingandmaintainingsoftwareandexpressedtheneedforclearandtangiblebenefits

• non-softwareusersalsoexpressedtheirapprehensionaroundtheirknowledgeandabilitytousedigitaltechnologywhichwasconfirmedbysomeoftheagentparticipants.

18 This view needs further validation in follow-up research as it is not clear that users could correctly anticipate the full range of changes they might face.

44%

22%

11%

11%

4%

4%

3%

0% 10% 20% 30% 40% 50%

Reducedtime taken/efficiency

Easier/better reporting

Moreaccurate inforeported

Reducedemployeequestions

Bettercontrol

Savesmoney

Increasedspeedofreporting

Benefitsidentifiedbypilotparticipantsn=74respondents, multiple reponses possible

17

Thebarriersidentifiedbypilotparticipantsweregroupedintocost,trustandconvenienceheadingsandcorrelatedwherepossiblewithmarketsegments.Theyaresummarisedinthetablebelow:19

Barrierstoimplementation

Barriersaregenerallynotsignificantfortheexistingpayrollsoftwaregroupofemployers,ofamoderateconcerninthereportingsoftwarespacebutstronglyclusteredacrossallcategoriesinthenocurrentsoftwaregroup.Evenso,theincidenceofbarriersarenotbelievedtofallevenlyonallemployersineachgroupasindividualcircumstancesandcapabilityvarygreatlyevenwithinthesecategories.

• Sometypicaluserfeedbackincluded:20

“AnythingtheATOdoestohelpmeutilisetheinternetisgood,itwillsavemetimeandmoney.”

“Imaynotneedtouse{myaccountant}asmuchaswedonow.Theycanjustcheckthefiguresformeinstead….Ifitcutsouttwoormorehoursfrommyadmin,thenitwouldbe

costeffective….”

“Tyingthedatatogether;Iamabigfanofdoingitonce.”

19 Single Touch Payroll – various user research reports and case studies (roll-up of barriers). An additional barrier headed ‘Fear of Super/PAYG withholding transparency’ was identified by the Pilot Working Group – mainly present in the micro employer group, especially single employee businesses. 20 Quotes from employers referenced in Single Touch Payroll stage 1 – user research report and stage 2 – user research report.

PAYROLLSOFTWARE

REPORTINGSOFTWARE

NOSOFTWARE

COSTCostofsoftware 0 2 4

Costoftaxagent/bookkeepers 0 2 2

Costofinternet(Rural) 0 0 2

TRUSTTrustinsoftware/security 0 0 2

ATOerrorhandling 1 2 4

ConcernreSuper/PAYGWtransparency

0 1 2

CONVENIENCEReluctancetochangeprocess 0 2 2

Time&efforttochange/learn 0 2 4

Reliabilityofinteret(rural) 0 2 4

18

ThefollowingchartsummarisestheprojectedimpactbybusinessprocessofSingleTouchPayrollbasedonallpilotparticipantswhocompletedthesurvey21.Cautionshouldbeexercisedinassumingthisassessmentcanbegeneralisedtothewholepopulation.

Percentage (%) n=116

5.2 EmployerswithnopayrollsoftwareThe18pilotparticipantsinStage1comprisedemployerswithnocurrentpayrollsoftwareandweremadeupasfollows:

• overhalfwerefrommicrobusinesses• representingRetail(3),Construction(3),AccommodationandFood(3),OtherServices(4)andadiversityofotherindustries

• 88%usedataxpractitionerofsomesort.

Participantswerebroughttogetherin90-minuteone-on-onesessionsintheATO’sco-designcentre.Theywereprovidedawalk-throughofSingleTouchPayrolljourneymapsandaskedabouttheircurrentpayrollprocessesandhowtheymaybeimpacted.

21 Feedback survey data results. Single Touch Payroll collated DCM, April 2017.

Participantsbysizeofbusiness

19

Theirkeyinsightsincluded22:

• overalltheywerelargelypositivetowardstheconceptofSingleTouchPayroll,butwithsomeclearnegatives

• realtimereportingandareal-timetallyofamountsowedmaygiveabetterhandleonhowtheirbusinesswasgoing.

• theyfeltthattheirexistingpayrollprocesscreatedthereportingdatarequiredforSingleTouchPayroll.Reportingthisdatathereforewouldnotbeabigimpost.However,frequencyandmeansofreportingthedatatoalignwithnaturalbusinesssystemswasnotthoroughlyexploredandthismaybematerial.

• theseparticipantsexpectthereshouldbeminimalcostsinvolved.Theyhighlightedthattheyworkonverytightmargins,whichlimitstheirabilitytoinvestinanythingdiscretionary.Ifacostwasinvolved,participantsexpectedittobesmall,andwantedtoseeclearandtangiblebenefitstotheirbusiness,thatwouldoutweighthecostandsavetime.

• unpromptedfeedbackfromparticipantswasthattheywouldexpectthe“ATOtoprovideawaytoreportorafreeversionofsoftwarethatcoveredbasicrequirementsforsmallbusinessreporting”.Otherssaidtheywouldbe“happytopayasmallfeeforsoftwarethathadthesefeatures”.

• reluctancetotake-uppayrollsoftwarebynon-softwareusersduetolackofconfidenceusingsoftware,orpreviouspoorexperienceswithtechnology.

• asmallbusinessrecentlytransitionedtousingapayrollsoftwarepackageindicatedtherewouldbelittletonochangetotheirexistingbusinessprocess.HoweverexistingprocessesarenotagoodproxyforfuturechangesrequiredbySingleTouchPayrollandthisshouldbequalifiedbyfurthertesting.

• someillustrativecommentsfromparticipantsinclude:

“Myaccountantdoesalotofthisnow,butifitmeanslessworkformeinthelongrun,itsoundsgood.”

“Theonlywayyouaregoingtosellittomeisifyouaregoingtomakeiteasyforme,andthereisaclearbenefitforme,savingtimeandmoney.”

22 Single Touch Payroll stage 1 – user research report

+ -Saves time and makes reporting obligations

easier

Concerns about ability to use technology and online data safety

NegativesPositives

20

“MoreeducationalsessionsaboutSingleTouchPayrollinruralareaswouldbevaluable.”

5.3 SolutionprovidersandtheirclientsInStage2ofthepilot,87participantswereabletoexperiencetheSingleTouchPayrolljourneyandassociatedprototypesthroughaselectionofsolutionprovidersbothlargeandsmall(6).ThisexperiencedemonstratedhowSingleTouchPayrollmightimpacttheircurrentbusinessprocess.

• around40%werefrombusinesseswith10or

moreemployeesandafurther26%wereunknown

• representedbyProfessional/Technical(41%),Retail(13%),Construction(10%),andadiversityofotherindustries.

Keyinsightsinclude:23

• forsmallemployerscurrentlyusingpayrollsoftware,thebenefitsofSingleTouchPayrollcouldbeachievedwithminimalimpacts.

• employersdidnotforeseeanyadverseeffectsontheircurrentendoffinancialyearprocesses(Paymentsummary)

• employerssawasapositivetheabilityforemployeesto‘self-help’inobtainingaPaymentsummaryviamyGov

• overall,onlylimitedbenefitswereseenasachievable–themainsentimentwasthattherewouldbelittletonoimpacttotheirexistingbusinessprocess,withtheexceptionofthecommencementprocess24

• employersraisedsignificantconcernsontheusageandusabilityofmyGovbyemployeesandidentifiedtheneedforsubstantialeducationandsupport.

Someillustrativecommentsfromparticipantsinclude:

“EndofyearisnowthesameaswhatI’mdoingendofmonth.”

“Don’thavetoreprintpaymentsummariesforpeopleallthetime.” “It’swhatIamdoinganyway.”

23 This section is based on the findings of the Single Touch Payroll – stage 2 user research report, unless otherwise indicated. 24 Single Touch Payroll high level user experience impacts (combined report for pilot feedback).

+ -Most could update to STP with little impact on their

current processes

Concerns about the useability of myGov for

employees

NegativesPositives

Participants by size of business

21

“Minimalimpact,itsclickingoneextrabuttonsoit’snothing.” “myGovisthemostimportantpartoftheprocessinorderto

makeitwork.Itmustbeeasytouse.”25

5.4 TaxpractitionersandclientsInStage3ofthepilot,22taxpractitionersand39oftheirsmallemployerclientsattendedaseriesoffacilitatedsessions.

• overhalftheemployerswerefrommicrobusinessesand70%hadlessthan10employees

• representingAgriculture(7),Construction(7),Professional/Technical(6),AccommodationandFood(4),Retail(3),ArtsandRecreation(3)andadiversityofotherindustries

• taxpractitionersincludedtaxagents,BASagentsandbookkeepersactiveinsmallbusiness.

Acombinationoffocusgroups,one-on-oneinterviewsandwebinarswereused.ParticipantswereprovidedanintroductiontoSingleTouchPayroll,askedabouthowthefourareasofchangeinSingleTouchPayrollwouldimpacttheircurrentprocessesandinvitedtocompleteasurvey.Keyinsightsincluded:26

• forsmallemployerscurrentlyusingsoftware,thechangesrequiredbySingleTouchPayrollareexpectedtobeminimal.

• communication,educationandsupportarerequiredtoensureallstakeholdersunderstandwhatthechangesmeanforthem

• smallbusinesswantsSingleTouchPayrolltobeimplementedwithminimalcostandwithclearandtangiblebenefits

• taxpractitionersandtheirsmallemployerclientsraisedconcernsontheusageandusabilityofmyGovbyemployeesandidentifiedtherequirementforsubstantialeducationandsupport

• smallemployerscurrentlyhaveverylowawarenessofSingleTouchPayrollandthechangesrequired

25 Single Touch Payroll high level user experience impacts (combined report for pilot feedback) 26 Unless otherwise indicated, this material is based on the Single Touch Payroll stage 3 user research report.

+ -Over half see

positive impact of real-time reporting

Concerns about trying to complete online tasks

themselves

NegativesPositives

Participants by size of business

22

• taxpractitionersofpaperbasedusersexpressedsignificantconcernsaroundthecostandlearningcurveinvolvedinmovingtoSingleTouchPayrollenabledsoftware,includingthepotentialforbusinessestoincreasetheirrelianceontheirtaxpractitioner.

Someillustrativecommentsfromparticipantsinclude:

“Concernedwiththeemployees’abilitytomanagetoaccessthemyGov andcompletetherequirement;wehaveilliterateemployees.”

“Togetsetup,mostwillneedsupportfromATOandtaxprofessionals.”

5.5 $100Taxoffset

Whenaskedabouttheproposed$100taxoffset,over50%27ofpilotparticipantsadvisedthiswouldhavenoinfluenceontheirdecisiontotakeuppayrollsoftware.

Someparticipantscommentedthat$100,asaonceoffoccurrence,doesn’tgofarinthecontextofbusinessmanagementsoftwareasthequotebelowfromaparticipantsuggests:

“Thereisnopayrollsoftwarethatcanbepurchasedforanywhereaslowas$100sothatincentiveisno-wherenearenoughtohelp.Andsoftwaremustbepaidforeveryyear,soa

oneoffhelpof$100isjustadropinthebucket.”28

Somecautionininterpretingcommentsliketheseareneededhoweverinthatmarketpricingknowledgemaybelimitedbyanyonepersonandanemergingtrendhasbeentowardsfreecloudsoftwareasanintroductionofferfornewstartersintothedigitalworld.

6 Learningsfromotherimplementations6.1 UKexperiencePayasyouearn(PAYE)RealTimeInformation(RTI)setoutanewwayforimprovingthereportingofPAYEincludingthecollectionofrealtimeinformation.TheintroductionofPAYERTIwasalsopartoftheUKGovernment'scommitmenttothereformofthewelfaresystembyenablingHerMajesty’sRevenue&CustomsService(HMRC)topassearningsdatatotheDepartmentforWorkandPensions29.

27 Feedback survey data results. 28 Single Touch Payroll high level user experience impacts (combined report for pilot feedback). 29 This section is based on: PAYE (UK.GOV, 6 June 2016; Managing Pay As You Earn in real time: challenges faced by micro-employers, (HM Revenue and Customs, August 2016); PAYE Realtime Information (RTI) ‘on-or-before’ requirements –

23

MandatedinApril2013,PAYERTIrequiresallemployers(ortheirintermediaries)tonotifyHMRCoftheirliabilitytoPAYEatthetimeorbeforetheymakepaymenttotheiremployees.ReportingtoHMRCisdoneelectronicallythroughRTIcompliantpayrollsoftware.Employerswithfewerthan10employeesareabletomakeuseofHMRC'sBasicPAYETools.Atoolthatsupportsmostpayrolltasks(notincludingpayslips)-suchasworkingoutthetaxandsendingthisinformationtoHMRC.

Exemptionsforfilingelectronicallycouldbeappliedforbyemployerswhoarepreventedfromusingacomputeronreligiousgrounds,disabled,elderlyorunabletoaccesstheinternet.

ThetransitiontoRTIbyallemployerswasexpectedtotakearoundthreeyears.OriginallyHMRCplannedtohavethePAYEdatatransmittedusinganautomatedsystemfortheclearingandsettlementofUKpayments.However,afterrepresentationsfrompayrollsoftwareproviders,aninterimsolutionwasputinplaceallowingemployerstosubmittheirPAYERTIdatadirectlyfrompayrollsoftwareovertheinternetviatheGovernmentGateway.

PriortothemandateofApril2013,HMRCconductedapilotbeginninginApril2012towhichover250,000earlyadoptervolunteeremployersenteredPAYERTI.

UpontheimplementationofPAYERTIinApril2013,HMRCallowedforatemporary“easement”foremployerswith49orfeweremployees,thisenabledemployerswhopaystaffmoreoftenthanmonthlytoreportemployeepaymentstoHMRConorbeforethelastpaymentdayofthetaxmonth.TheeasementwasthennarrowedinApril2014toexistingmicroemployersonly(thosewith9orfeweremployees)toreportonorbeforethelastpaymentdayofthetaxmonthuntilApril2016.

Inlinewiththenarrowedeasement,HMRCcommissionedresearchtohelpestablishreadinessamongtheexistingmicroemployerpopulationtomovetofull‘on-or-before’paydayreporting.

Somekeyfindingswere:

• someemployerswereconfusedby‘on-or-before’anddidnotchangetheirprocess• somemovedfrompapertoelectronicpayrollorchangedsoftwareprovider(including

movedawayfromBasicPAYETools)• someemployerssubmittedthePAYElateastheythoughtthisenabledthemtopaytheir

PAYEliabilitytoHMRClate,therebyeasingtheircashflow• strugglingemployersconsideredtheyneededsupportincludingtipsandapproachesto

trainingstaffandinformationabouthowtodealwithchallenges/complicationstosubmissions.

HMRCdelayedtheintroductionofautomatedpenaltiesinApril2014inresponsetoconcernsfromemployersandpayrollagentsaboutthestabilityofRTIsystemsandemployer’sabilitytomanagethe‘onorbefore’aspectofRTIreporting.Afterasettlinginperiod,theythencommencedautomatedpenaltiesforsmalleremployersinMarch2015.

Research with micro and small employers, Report 369 (HMRC, September 2015); PAYE Realtime Information Post-Implementation Review, Submission to HMRC (ICAEW 163/16); RTI – Post-implementation Review, Submission to HMRC (Association of Taxation Technicians, 15 April 2016); Making Tax Digital for Businesses Research (HMRC, February 2017).

24

Todate,concernsremainoverHRMC’sabilitytoaccuratelyreconciledatacollectedfromemployersubmissionstothecorrectPAYEaccountsandalsotomanagetheallocationofpaymentsitreceivestotheseaccounts.

TherearesomeimportantdifferencesfromtheAustralianapproachtoSingleTouchPayrollincluding:

• thestagingoftheHMRCimplementationbetweenlargerbusinessesandtherestofthepopulationwasnotclearlydemarcatedatthebeginning(samestartdateofApril2013butwithsomerelaxationonreportingfrequencyforsmallbusiness)

• theUKGovernmentchosetotiebothwelfarereformandPAYEreformtogetheratthesametimeputtingalotofpressureonHMRCandemployerstogetRTIworkingquickly(andcausingdownstreamimpactswhenitdidn’tordelayswereencountered)

• requirementsforPAYEreportingintheUKaremorecomplexandmoretechnicallydemandingforsmallbusinessthaninAustralia.

Keylearningsinclude:

• allowforflexibilityintimeextensionswhenneeded• ensureSingleTouchPayroll(firststage)isstableanddeliveringexpectedbenefitsbefore

embarkingonfurtherreformswithdownstreamrevenueorwelfareconsequences• HMRCguidancewasdifficulttonavigateandunderstandforsmallbusiness• providepenalty-freegraceperiodsduringimplementation• keepstakeholderfeedbackandcollaborationgoingduringimplementation,evenwhen

thereisbadnewstobedelivered• anticipatetherewillbeanelementofPAYGwithholdingandsuperreporting,especiallyin

themicrosegment,whichlacks‘checking’andappropriateduediligence(softwaredoesnotsolvethisproblem).

6.2 NewZealandexperienceInlate2016NewZealandannounceda‘BetterAdministrationofPAYE’reformwithstrongsimilaritiestoSingleTouchPayroll.Itspurposeistoreducecomplianceandadministrativecosts.Theschemehasnotbeenlegislatedyet.30

• itwillrequireemployerstofileonapaydaybasisfrom1April2019(witha12monthlead-inofvoluntarylodgment)

• employersandintermediariescanfilePAYEdatausingpayrollsoftwareornotastheyseefit

• employerscansubmitonpaperiftheyarebelowpayingcombinedthresholdof$NZ50,000forPAYEandsuper(equivalenttoabout3.5full-timeequivalents)

• exemptionscanbeappliedforbyemployersinlocationswheresuitableinternetservicesarenotavailableorbyemployersnotusingcomputers

• thechangesalsoinvolvestreamliningofnewemployeeinformation• apayrollsubsidytosmallbusinessof$2peremployeeperpayevent(limitedtofive

employees)willphaseoutfrom1April2018(anincentivetoemployersoutsourcingtheirPAYEtolistedpayrollintermediaries).

30 This section is based on: The Time, Money and Effort It Takes for SME’s to Comply (Inland Revenue – NZ, November 2016); PAYE Reporting – Better Administration of PAYE (NZ Minister of Revenue, November 2016).

25

ThedecisionbyNewZealandtomoveawayfromdirectincentivestosmallbusinessislargelyduetothefactthattheincentivefavouredonlyonepartoftheproduct/servicemarketandInlandRevenuewasintroducingnewonlineservicestohelplodgers.

InlandRevenuewillnotprovideanyfreepayrollsoftwareproductsasitwishestoavoidcompetingwiththeexistingmarketproviderswhohaveproductsandservicesatavarietyofpricepoints.Inaddition,itenvisagesthatsimple(non-payrollsoftware)alternativesforonlinelodgmentwillbeavailable.

InlandRevenuesaythatsimilarreformsintheirGSTprocesshavereducedcompliancecostsby20%.

6.3 SuperStreamexperienceTherearesomeimportantdifferencesbetweentheSuperStreamimplementationandSingleTouchPayrollincluding:

• SuperStreaminvolvedtransitioningbothdataandpaymentsintoadigitalchannel,whileSingleTouchPayrollinvolvesonlydatareporting

• SuperStreamhadasignificantportionofsmallbusiness(around50%)withquarterlypaymentandreportingdateswhichrequirednochange,butunderSTPreportingwillneedtomovetoapaydaybasis(commonlyfortnightly)

• SuperStreamwasmorecomplexfromadestinationperspectivebecauseitinvolvedemployersreportingandpaymenttomultipledestinationssimultaneously(amessageroutingnetworkwasthereforealsoimportant,butisnotcriticaltoSingleTouchPayroll).

Keylearningsinclude:

• smallbusinessmomentumgrewonthebackoflargeandmediumbusinessimplementationwitharound20%ofsmallbusinesshavingimplementedpriortotheopeningwindow- nearlyallleadingsolutionshavingproventheirworkabilityinthefirststagesof

implementation- allreceivingpointsandvolumesurgepointshavingproventhemselves

• theoverwhelmingmajorityofsmallbusinessprovedcapableandwillingtomoveintoadigitalchannelforlinkeddataandpaymentselectronically–withasixmonthsextensiontotheoriginalschedule

• thefinal10%ofsmallbusinesswerethemostdifficulttomoveintofulldigitalcompliance,althoughatleastone-halfofthesewerepayingviaelectronicmeans

• acombinationoftargetregional,industryandethnicbusinesscommunitymarketingcampaignswerecriticalinthesmallbusinessphase

• intermediariesplayedacriticalroleindrivingtheimplementationinadditiontosoftwareproviders

• payrollsoftwareprovidersmainlyreliedonpartneringwiththirdmessagingproviderstomeettheSBR/reportdeliverysideoftheirsolutions

• solutiondiversityinreportingchannelshelpedprovidechoiceforemployersandcompetitionbetweenproviders

• activestakeholderengagementandfeedbackwascriticalthroughoutthetwo-plusyearsofimplementationeffortwithemployers.

26

7 GettingthebasicsrightMostofthebarriersidentifiedduringthepilot(seeSection5.1)havewellknowncausalfactorsthatcanbeaddressed.Inlargepart,thesebarriersarenotuniquetotheproposedSingleTouchPayrollmandatebutaresimilartoanylarge-scalechangeprocesstotaxandsuper(e.g.theGSTchangein2000-01andtheSuperStreamchangesin2015-16).Theremainingsectionsofthisreportsetsoutthekeystrategiesandtoolswhichcanbeusedtoovercomethebarriersandbridgethecapabilityorconfidencegapsomeemployersface,whilesupportingothersmakethechangeasseamlesslyaspossiblewheretheyalreadyhavethecapacitytodoso.

7.1 AmandatetodrivechangeSingleTouchPayrolladdressesanunderlyingnon-complianceproblembycreatingacommon,reliablereportingobligationforbusinesswhilereducingaspectsofthecomplianceburden.Inessence,itisimpossibletomoveto‘real-time’reportinglinkedtothepaydaycycleinamanualworld.Thecostsonallpartieswouldbeprohibitive.

ThecurrentadministrationofPAYGwithholdingandsuperhassomewell-knowndrawbacks.Byseparatingthepaydayandreportingevent,thecurrentregimecreatesroomforerrorsandunnecessaryreconciliation.Alsobyencouragingrelianceonend-of-yearreconciliation(bybothsmallbusinessandtheATO),itintroducesupto12monthdelaysinrecognizingunder-reportingandpaymentproblems.TheseareallmattersthatwouldbeimproveduponwiththeintroductionofSingleTouchPayroll.

Thealternativetoamandateistorelyonvoluntaryadoption.Inthewordsofonestakeholder:“IftheSingleTouchPayrollsystemprovestobeefficientandeffectiveforbusiness,thenthesystemshouldsellitselfandtheuptakeshouldimprovenaturallyovertime.”

However,thisfailstotakeaccountofthecomplianceandderegulationbenefitsthatwillflowfromSingleTouchPayrolltosmallbusiness.Italsoignoresthe‘freerider’effectofachangelikethis:appearingtorewardthosewhositbackanddonothing,whileincreasingthe‘tilt’intheplayingfield.Inotherwords,thiswouldhavetheeffectofcreatingheightenedtransparencyforthosewhodotherightthingandallowingthosewhodonottoavoidcloseandtimelyscrutiny.

7.2 SupportingmanycustomerjourneysOneofthekeystosuccessinimplementingSingleTouchPayrollisrecognizingthemanyuserpathwayswhichsmallbusinesswillneedtofollow–pathwaysthatareresponsivetoindividualstartingpoints,capabilitiesandstylesofbusiness.

Buildonthelearningsofthepilotandourassociatedresearcheffort,theATOhasmapped17keyuserpathwayswhichsmallbusinesswillcommonlytake(seeAppendix3–Userpathwaylist).Thesepathwayschartthediversityofemployerexperienceandcapabilities,thedifferingtypesofsolutionsandtheimportantrolethatintermediarieswillplayinimplementation.

27

Sampleuserpathway:payrollsoftwarelicenseupdate

Eachpathwayissupportedbyacustomerjourneymap(seeexampleinAppendix4–Samplecustomerjourney).Customerjourneymapsareoneofthetoolsthatwillbeusedtodeveloptargetedcommunicationsandsupportforsmallbusiness.

Eachpathwaycontainsacommonseriesofstepswhich,toagreaterorlesserdegree,anemployerwillneedtoundertake.Thepathwayproceedsthroughaseriesofstagesbeginningwithaprocessof‘solutiondiscovery’,movinginto‘solutionengagement’,andthen‘transition’(whereimplementationfinallytakesplace)beforefinallyendinginarecurringprocessof‘synchronisation’withongoingreportingandannualsummaries(thislaststageisnotmappedasitrepresents‘business-as-usual’).

Thepathwaycallsoutthekeybusinesspartnersinvolved(thereisrarelyonlyonepartyinvolved)andthelikelyroletheywillplay.Inaddition,therearesomedataestimatesofmarketcoveragethispathwayaccountsfor.31

Somepathwaysareverysignificantintermsofsize,whileothersarequitesmallbutneverthelessessentialtounderstandinappreciatingtheoverallrangeofchoicesemployersmayhave.Whileextensive,thislistofpathwaysshouldnotbeconsideredexhaustive-thereareothervariationsandpossiblyevennewpathwaysnotyetunderstood.Thetasknowistostartusing,testinganditeratingthesepathwaysinpreparationforthefirststagesofimplementation.

7.3 DiverseandinnovativesolutionsThepayrollsoftwaremarketinAustraliacanbeconsideredasquitematureover175solutionproviders,amixtureofglobalandlocalcompanies,andacomplexecosystemofpartners,suppliers,anddistributionchannels.TheATOitselfisbutonesmallpartofthislargerecosystem.

Employershaveawidearrayofchoiceinproductsandservicesacrossabroadrangeofpricepoints,althoughswitchingofproductsisquitelow.ArecentmarketsurveybytheATOof25payrollsoftwarecompaniesinthesmallbusinessmarketidentifiedthreebroadtiersofpricingavailablerangingfromfreeandlowcostmodelstargetedatthemicroenduptopremiumpricemodelsatthehighend32.

Butthepayrollsoftwaremarketfacessignificantanddisruptivechangeforcesallaroundit.Tonameafewsourcesinrecentyears:cloudtechnologies,agilemethods,messaginggateways,newsuperplatforms,newpaymentplatforms,fintechstartups,blockchaintechnologies,newauthenticationsolutions,cybersecuritythreats,newusesofsocialmedia,freemiumbusinessmodels,mobileapps,analytics,andemployeebenefitplatforms.33

31 ThesearebestguessmarketestimatesbasedonanalysisoftheATO’sdataholdings,experiencefromsimilarimplementations,pilotsurveydataandfeedbackfrommarketparticipants.32 Prices,ofcourse,tendtoreflectdifferentvaluepropositionsanddifferentrevenuemodels.Buyersneedtoexerciseappropriateduediligenceinchoosingasolution. 33 Seeforexample,Payrolltechnologyindigitalage(PWC,2016).

Payrollsoftwareprovider n n n n n n n

02 PayrolllicenseupdateSolution

Discovery > Solution Engagement > Software

Update > Payroll Data Input > Test Run > Pay Run > Reporting

201,997 29%

Employer n n n n n n n

Payrollsoftwareprovider n n n q q q q

Messageserviceprovider q q q r r r n

Marketcoverage:

28

AndthenthereisSingleTouchPayrollinitiativeitselfandanewregulatoryenvironment,coupledwithnewdigitalengagementstrategiesingovernment.

Thepayrollsoftwaremarketisalreadyrespondingto–andinsomecasesleading-thesechanges,suchasbuildingnewproducts,findingnewpartnerstoworkwithandadjustingtheirservicemodels.Itisreasonabletoexpectevenmoreoverthenexttwo-threeyearsasSingleTouchPayrollrollsoutandasmallbusinessmandatelooms.

Employersthemselvesarepartofthischangedynamic.Whilemanysmallbusinessesarealreadystronglyinvestedinpayrollandtaxreportingsolutions,theyalsomayhaveafootinothertaxandaccountingservicearrangements,bankingandpaymentplatformsorsuperportalsandclearinghouses.SingleTouchPayrollthereforeismorethansimplyaboutbuyingsoftwareorupdatingaproduct.Itisaboutasmallbusinessmakinganinformedchoiceaboutwheretopositiontheirbusinessinthedigitalageandwhatsortofplatformstheyshouldbuyintoorconnectto(withlimitedresourcestoinvest).

2013McKinseystudyhighlightedthesortsofchangeswemightexpecttosee:34smallbusinessshowinginterestedinnon-corebankingserviceslikepayrollandemployeeretirementandbanksneedingtorespondtoincreasedcompetitionbybuildingontheirrelationshipsanddistributionadvantages.

7.4 Pro-activemarketingandcommunicationsApro-active,welltargetedcommunications,helpandsupportcampaignwillbecriticaltothesuccessofthesmallbusinessimplementation.Thisneedstobebuilt,notsimplyasanATOcampaign,butasaco-marketingendeavourwithselectedimplementationpartners.Whilethecampaignwillhaveanimportant‘awareness’generatingphase,itneedstobedesignedtoevolveintoamulti-facetedprogramofeducation,activeassistanceandconnectionstosolutionprovidersandintermediarieswhoarebestpositionedtohelpwiththechange.Inparticular,theabilitytotargetbusinessesaccordingtotheirpropensityforchangeatdifferentstagesoftheimplementationcycleiskey(seeforexamplethestagesdescribedinthemodelimplementationscenarioinSection9.1).Thecustomerjourneymapsandsupportstoriesprovidethekeytounderstandingthiscycleofaudience,messagingandsupport.Thecampaignwillalsoneedtoworkacrossseveralkeymarketingdimensions,including:

• keyindustries

• regionalAustralia,particularlyruralandremote

• ethnicbusinesscommunities.Aparticularfocusareaofthecampaignmustbeonmicrobusinesseswithlessthanfiveemployeesthat:

• arenotalreadyworkingwithpayrollorreportingsoftware

• havelittleornodigitalcapability

• arelocatedinrural/remoteareaswheredigitalconnectivitymaybeaconstraint

• infrequentorirregularemploymentarrangements.

34 DigitalModelsforaDigitalAge:TransitionandOpportunityinSmallBusinessBanking(McKinsey&Company,January2013).

29

7.5 BuildingtrustandconfidenceTherearetwoareaswheretheATOcanhelpbuildtrustandconfidenceforsmallbusinessinthenewcomplianceregimeunderSingleTouchPayrollthrough:

i) certificationofSingleTouchPayrollsolutionsii) providingundertakingsonhowtheprocessingofmorefrequent,onlinereportingwill

work.

CertificationofsolutionsWhereagovernmentmandateexists,payrollsoftwareandotherenablingsolutionswithclaimstobe‘compliant’shouldcomewithindependentlyverifiableclaimsandbesearchableinapubliclyavailableregister.Thisisespeciallytruegiventhelackofmarketknowledgeandfamiliaritywithdigitalsolutionswhichmanysmallbusinessesfaceinthisfield.Thiscertificationneedstoextendbeyondthebasicpayrollpackagetothe‘datamessaging’package(ofteninvolvingaseparateentityorthirdparty)asitisonlywiththecombinationofthesetwofacetsthattherequirementsofSingleTouchPayrollcompliantreportingcanbemet.TheATOiscurrentlyworkingwiththeAustralianBusinessSoftwareIndustryAssociationtodevelopsucharegisteranditisimportantthatitprovideseasy,simpletosearchreferencesforsmallbusinessemployers.

ApositiveclientexperienceInordertoencourageearlyimplementationofSingleTouchPayrollandbuildtrustinthenewreportingandcomplianceregime,theCommissionerofTaxationshouldconsidersettingoutaclearundertakingtosmallbusinessthattheywillbeassuredofapositiveclientexperienceiftheydotherightthingunderSingleTouchPayroll.

ThenatureofthisundertakingrequiresfurtherdevelopmentbytheATOinconsultationwithstakeholders,butcouldbedesignedtoprovidecertaintythatanemployer’sreportingobligationshavebeenmetforeachreportingperiodand/ortoprovideclarityastowhatcircumstanceswouldresultinfurtherreview.

Forexample,whereabusinessfindsanomissionorinaccuracyinaperiod’slodgment(suchasanovertimeratenotpaidorleaveentitlementmissed),thisshouldbecorrectedbytheemployerinthenextavailableperiod.TheCommissioner’sundertakingcouldapplyinthesecircumstancessuchthatnopenaltieswouldberaisedandnobackwardadjustmenttopriorreportingperiodswouldberequired.

Thisundertakingcouldapplywhereverasmallbusinessreportedusing‘SingleTouchPayrollcertifiedsoftware’35andinaformthatwascompleteandon-time.Anyundertakingwouldalwayshavethecaveatthatitwouldnotapplyincircumstanceswherefraudorsubstantialmisstatementhadoccurred.

35 Single Touch Payroll software which has been certified by the ATO as meeting the technical requirements for PAYG withholding and super reporting, including the messaging standards of Standard Business Reporting.

30

8 Bridgingthegap8.1 ProvidingatargetedincentiveBasedonpilotresearchandasurveyofsoftwareproviders,amodelwasdevelopedbytheATOforestimatingthecostofimplementingSingleTouchPayrollforsmallbusiness.Themodellooksatthecombinedimpactofupfrontimplementationcosts–theimplementation‘hump’–andthentheongoingcostsoverafullyearcycle.

Themodeldiscriminatedbetweenthreesizerangesofsmallbusiness(1-4,5-9and10-19employees)andlookedattypicalcostsacrossthewholerangeofuserpathwayssetoutinAppendix3.Foreaseofcomparison,thecostanalysiscomparedthreedifferentscenariosforamicrobusiness:

i. alowcapability,hightouchchangepathwayii. abasiccapability,lowtouchchangepathway,andiii. anestablishedcapability,lighttouchchangepathway.36

Basedonthisanalysis,themostsignificantcostsinrelativetermsareassociatedwiththeimplementation‘hump’foramicrobusiness(1-4employees)37.Keyfactorstonoteinclude:

• theopportunitycostofmanagementtimeinthestart-upeffortismostsignificantformicrobusiness(typicallyinthetwotothreemonthsleadinguptoandincludingperformingthefirstpayrunusingaSingleTouchPayrollproduct)

• advisoryorhardwareacquisitioncostswouldpushstart-upcostshigher(whererequired)• anincentiveaimedatoffsettingthisstartuphumpformicrobusinessislikelytobethe

mosteffectivewaytotargetassistance• anyincentiveshouldbeavailablewithlittle/noextraeffortbyabusinessandcould

perhapsbetiedtolodgingtheirfirstreportswithcertifiedsoftware• appropriatefraudpreventioncontrolswouldneedtobebuiltintoadministrationofany

schemebytheATO.

8.2 Workingwiththedigitallydisengaged BasedonATOestimates38around5-10%ofthesmallbusinessmarket(upto70,000mainlymicrobusinesses)canbeconsideredtobedigitaldisengaged.Thekeyfactorsdrivingdigitaldisengagementareage,attitude,opportunityandcapability.

36 Examples of these scenarios are: i) A low capability, high touch change pathway (e.g. novice user moving into licensed payroll software), (ii) A basic capability, light touch change pathway (e.g. already using a super reporting solution and upgrading on same solution), iii) An established capability, light touch change pathway (e.g. already using cloud payroll product). 37 Costs include software subscriptions and management time/effort to get through the setup. Advisory costs are not included and would add substantially to the upfront costs if borne by the employer. Based on an ATO May 2017 survey of payroll software businesses in the small business market, monthly subscription rates for a typical micro business (<5 employees) range from a low of $0-12, medium $13-58 to a high of $59-99. Single employee businesses have rates at around a 50-60% discount to these ranges, while rates for small business with 5 or more employees are roughly 1.5-2 times these ranges. 38 SeeSection3.4.

31

Astrategytobreakdownthebarrierstodealingonlineinthesebusinesses.Thisstrategyshouldtakeaccountofthedifferentcapabilities/mindsetsofmicrobusinessandfocusonincremental,progressivechangeratherthanrelyonbig-stepchangeoptions.Certainlyageofbusinessownersisabigfactorinmicrobusinesswith‘nopayrollorreportingsoftware’experience.ATOdatashowsthat77%ofownersinthisgroupareaged45andoverwith45%are55andover.Learningtopartnerdigitallywithothersisimportantfortheirbusinesssurvival,eveniftheycan’tdoitthemselves.Commonlyinafamilybusiness,itisayoungermemberofthefamilyorperhapsanaccountantorbookkeeperwhocanbringtherequisiteskillsandconnections.Capabilitycanalsobeacquiredviaatrustedthirdparty,suchasanaccountantorbookkeeper.Thisprovidesanavenuetoencouragethefirststepstowardchange.Recentpath-findingmarketresearchbyInfusionsoftintheUSAhighlightstheimportanceofattitudinalfactorstounderstandingdifferenttypesofsmallbusiness–thesearefarmoreimportanttounderstandingwhatmakesasmallbusinesstickthantraditionaldemographicsegmentation.39The‘LegacyBuilders’group,forexample,revealsthekeyinsightthat‘theyaremorelikelytoturntofamily,friendsandcoworkersforadvice’onbusinessissuesandarelesslikelyto‘adopttechnologyandseekautomation’astheyprefertorelyon‘intuitionandtraditionalprocesses’.Thissuggestsnotonlyawaytoinfluencethistypeofbusinessownerbutalsotoemphasisesomethingclosertoa‘traditionalprocess’thanradicallydifferent.Adviceandsupportfromtrustedadvisersandpeersarekeyinfluencersinthisprocess.Thefollowingdiagramshowstherolethatsmallstepscantaketowardsthebiggergoal–andwitheachsteptheroomfornewexperienceandtrustcangrow.

Asmallstepsstrategy

Ifthecombinedforceofnewservices,education,persuasionandamandatetochangefailstomoveasmallbusinesstowardsSingleTouchPayroll,thenalternativeremediesshouldbesoughtforgenuinecasesofhardshiporincapacitytodealwithchange.UndertheSingleTouchPayrollprovisionsoftheTaxationAdministrationAct1953andrelatedinstruments, 39 2014InfusionSmallBusinessOwnerAttitudinalSegmentationResearchReport(Infusionsoft,August2014).Alsoseethe2016reportupdate.Basedonasurveyof850diversesmallbusinesseswithlessthan25employeesintheUS.Itidentiifiesfourclustersofsmallbusiness:PassionateCreators,LegacyBuilders,FreedomSeekers,StrugglingSurvivors.

LowLow

High

HighDigitalEngagement

Ope

n-ne

ssto

Partnering

2LicensedPayroll

CloudPayroll

1

Outsourced

4

BookkeeperLighttouchreporting

3

32

theCommissionerofTaxationhasthepowerstotakeaccountofthesecircumstances(ifandwhenthisbecomesnecessary)andprovideanalternatearrangement.

8.3 HelpingruralandremoteusersDigitalengagementisanimportantnationalstrategyforengagingruralandremotebusinessesinAustralia40notonlywiththeircustomers,suppliersandgovernmentbutindeed,theircommunitiesandpeers.Digitalisnolongersimplyseenasa‘disadvantage’butincreasinglyasanopportunityinregionalAustraliaandasourceforpossiblesustainmentandinnovationinbusiness.Overcomingdistanceandknowledgeboundariestobetterconnectthesebusinesses.However,theknowledgenetworksandpeersharinghappendifferentlyinregionalAustraliathanitdoeswithinthebigcities.Howthingsgetdone,especiallywhenlocalexpertiseorhelpisneeded,isalsodifferent.SoitisimportantthatSingleTouchPayrolldevelopsaregionalstrategyforitscommunicationsandsupportactivities.Keyelementsofthisstrategyshouldinclude:

• profilingandtargetingthe30regionalcommunitiesaroundAustraliaforsmallbusiness,industryanddigitalcompetencies

• identificationofintermediarypartnersandlocalchampionsineachcommunityfordeliveryofco-marketingandhelpstrategies

• useofthelocalmediaandradio

• dedicated‘red’teamstoprovideonline,phoneandonthegroundsupportintheregions.ThematerialpresentedinAppendix5–RuralandremoteregionssummarisetheprofilingworkalreadyperformedbytheATOandhowaregionalcampaigncanbetailoredaroundtheparticularattributesineach.UndertheSingleTouchPayrollprovisionsoftheTaxationAdministrationAct1953andrelatedinstruments,theCommissionerofTaxationhasthepowerstotakeaccountofgenuinecasesofhardship,lackofsuitableinternetaccessorincapacitytodealwithchange,ifandwhenthisbecomesnecessary.

8.4 LevellingtheplayingfieldSingleTouchPayrollisdesignedtoprovideneartoreal-timetransparencyoverPAYGwithholdingandsuperobligations.Theanchorforthistransparencyisthefactthatreportingmustoccuratthesametimeastheroutinepayevent,whiletheefficiencybenefitforanemployercomesfromdigitalcaptureandtransmissionofemployeedatadirectfromthepayrollevent.

Seriousnon-compliersarebusinessesthatwillfullyavoidorunder-reporttheirPAYGwithholdingorsuperobligationsinasubstantiveandrepeatedmanner.Thisincludesthosebusinessesusingdevicestohideorobscureemployeesontheirpayroll,avoidmakingtimelypayments(withoutATOengagementoveralternativearrangements)andundertaking

40 SeeforexampleRegionalAustraliansOnline(TheAustralianCommunicationsandMediaAuthority-ACMA,28April2016)and NBN Broadband Index (National Broadband Network - NBN, 2016).

33

corporaterestructuringorothermaneuverstoavoidlegalresponsibilityfortaxdebtsincurred.

Theinterestsofoneormoreemployeeareinevitablyharmedbysuchactionandcanleadtopotentiallossofincome,lossoffuturesuperannuationsavingsanddisputedpersonaltaxreturnsfortheindividualsconcerned.Inaddition,otherbusinesseswhoaredoingtherightthinginmeetingtheirtaxandsuperobligationsareputatacompetitivedisadvantagebythe‘freerider’behaviourofnon-compliers.

SingleTouchPayrollclosesthespaceandopportunityforthistypeoffraudulentactivitybyprovidingtimelyreportingofpayrollrelateddatatotheATO,whichalsothenallowscorroborationbyemployeesastheyareabletotracktheprogressoftheirtaxablepayandsupercontributionsviamyGov.

Inaddition,byrequiringseriousnon-complierstoreportviaSingleTouchPayrollattheearliestpossiblemandatorydate,thisprovidesanearlydemonstrationofthelevelplayingfieldbenefitsitwillbringtoallsmallbusiness.

9 Implementationscenario9.1 AmodelimplementationscenarioBasedontheATO’sexperiencewithandreviewofsimilartypesofimplementations,amodelscenariohasbeendevelopedtoassistinunderstandingthelikelydynamicsassociatedwithasmallbusinessmandate.Thisscenarioispredicatedonthefollowingassumptions:

• thischartassumesamandatedstartdateof1July2019witha12monthlead-inonthetailofthesubstantialbusinessimplementationfollowedbyafurther12-monthwindow(orgraceperiod)tobecomecompliant

• ascenariolikesthishelpsvisualizehowtomanagethechangedynamicsmorepurposefully:encouragingearlyadopters,followedbyearlymajority,influencingthelatemajorityandleavingthefinaltailofthosemostresistanttochange/strugglingforlast

• eachstagehelpsbuildthecasestudies,experienceandadvocatesforlaterstages

• communicationsandsupportcanbetailoredtofitthetargetaudienceanditsneedsateachstage

• thegradualbuildinvolumeandcomplexityallowsindividualsolutionproviderstostagetheironboardingeffortovertimeandfortheATOtoavoidunexpectedvolumechoke-points

• onevariationonthisstandardchangemodelistobringforward‘seriousnon-compliers’fromtheirlikelytailpositionandrequiringcomplianceattheearliestdate

34

• analternativestartdatecouldbe1July2020

- Ifthelatterdateischosen,theshapeofthecurvewillbeflatterpriortoQ5withthepossiblelossofmomentumfromthesubstantialemployerimplementationanissue.

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

STP- SmallBusinessImplementationN=675,000

SBmandatewindowstarts Windowends

Earlyadopters

Earlymajority

Latemajority

Tail

Employers

35

Appendix1–ParticipantsselectionTheidentificationandengagementofappropriatesmallemployersiscrucialtothesuccessofthePilot.ThetargetedPilotpopulation:

• coversabroadspectrumofsmallbusiness

• arangeofindustryandsub-groupsofemployers

• acombinationofmetro,regionalandremotesmallbusinesses.Aswellastheabovetargets,smallemployersparticipatinginthePilotwillalsorepresenta:

• diverserangeinbusinessturnover

• varietyoflodgmenttypesandBASobligations,paperorelectroniclodgers.Pilotsegmentsalsoincludedconsiderationofdigitalaccessandcapabilityofsmallbusinessbasedon:

• 1to4employees

• 5to9employees

• 10to19employees.

Participantswerealsoidentifiedwithassistancefromexistingpartnershipswith:

• Payrollproviders

• Digitalserviceproviders

• Industryandbusinessassociations

• Taxprofessionals.ParticipationinthePilotwasvoluntaryandparticipantscouldwithdrawfromthePilotatanytime.

36

Appendix2–Consultationgroup

TheSmallEmployerPilotWorkingGroup(SEPWG)wasestablishedunderdirectionoftheSTPProgramAdvisoryGroup(STPAG).41Thegroupiscomprisedofexternalrepresentativesfrombusiness,industry,professionalassociations,taxpractitionersandtheATO.ThegroupworkedwiththeATOtoprovideinputintothepilotstrategyandapproach,leveragingthemembers’knowledgeandexperiencetoensuretherequirementsandimpactsforemployers,digitalserviceproviders,industryassociations,financialinstitutionsandclearinghousesarefullyconsidered.42 TheSEPWGrepresentativeswereasfollows:

Members

AustralianTaxationOffice-SingleTouchPayrollSmallBusinessPilot

TheAustralianSmallBusinessandFamilyEnterpriseOmbudsman

CouncilofSmallBusinessAustralia

AustralianChamberofCommerceandIndustry

CharteredAccountantsAustraliaandNewZealand

InstituteofCertifiedBookkeepers

FinancialInstitution

TaxPractitioners

AustralianRetailersAssociation ThefinalreportandrecommendationsrepresentstheviewsoftheATO.Althoughinformedbyinputfromthisgroup,thereportdoesnotpurporttorepresenttheviewsofitsmembers.

41 Charter – Single Touch Payroll Small Employer Working Group. 42 Charter - Single Touch Payroll Small Employer Working Group.

37

Appendix3–Userpathwayslist

38

Jack’sCleaningBusinessCUSTOMERJOURNEYMAP

JackcurrentlyuseshislocalbookkeeperforquarterlyBASandpaymentsummaryreporting.HehearsaboutthenewsingletouchpayrollchangeswhichmeanshemustreportPAYGWeachpayperiodandaskshisbookkeeperifshecanhelp.

Jack’sbookkeeperhasapartneringagreementwithamajorsoftwareproviderandarrangesforJacktogetsignedupona’STPcomplying’cloudpayrollpackage.SheexplainshowitworkstoJackandtheyagreetoanewserviceagreementwhereJackwillprovidepayrolldetailstohereachfortnightandshewilldothepayrollandPAYGReporting.

JackgetshisaccessforthepayrollpackagesetupandarrangestogetanAUSkey deviceforhisreportingtotheATO.Jacknowforwardshispayrolldatatohisbookkeeperwhoentersit,configuresthesetupinformationandrunsatest‘dummy’run.Jackconfirmsthepay,withholdingandsuperdatalookscorrect.Whenthenextpaydayarrives,theydoitagain- forrealthistime– andsendoffthePAYGreporttotheATO.

JackhasnowrunseveralpaydaysandsettledintohisnewSTPprocess.Heisworkingthroughtherepeatcyclesofpay,PAYGreporting,BASandpaymentsummaries.Jackispleasantlysurprisedathowsmoothlythisoperatesnowthathehaspartlyautomatedhispayroll,withthehelpofhisbookkeeper,andPAYGIsalwaysuptodatewiththeATO.

Jack runs a cleaning business with seven part-time employees. He still does a lot of things on paper but he does use his smartphone to stay in contact with customers and get things done. His bookkeeper looks after his BAS.

Day 03 months to go 2-3 weeks to go2 months to go

1 2

34

Employerassisted(payrollupgrade)

Pathway #4

Entities: 57,4438%marketshare

Jack’sCleaningBusinessCUSTOMERJOURNEYMAP

JackcurrentlyuseshislocalbookkeeperforquarterlyBASandpaymentsummaryreporting.HehearsaboutthenewsingletouchpayrollchangeswhichmeanshemustreportPAYGWeachpayperiodandaskshisbookkeeperifshecanhelp.

Jack’sbookkeeperhasapartneringagreementwithamajorsoftwareproviderandarrangesforJacktogetsignedupona’STPcomplying’cloudpayrollpackage.SheexplainshowitworkstoJackandtheyagreetoanewserviceagreementwhereJackwillprovidepayrolldetailstohereachfortnightandshewilldothepayrollandPAYGReporting.

JackgetshisaccessforthepayrollpackagesetupandarrangestogetanAUSkey deviceforhisreportingtotheATO.Jacknowforwardshispayrolldatatohisbookkeeperwhoentersit,configuresthesetupinformationandrunsatest‘dummy’run.Jackconfirmsthepay,withholdingandsuperdatalookscorrect.Whenthenextpaydayarrives,theydoitagain- forrealthistime– andsendoffthePAYGreporttotheATO.

JackhasnowrunseveralpaydaysandsettledintohisnewSTPprocess.Heisworkingthroughtherepeatcyclesofpay,PAYGreporting,BASandpaymentsummaries.Jackispleasantlysurprisedathowsmoothlythisoperatesnowthathehaspartlyautomatedhispayroll,withthehelpofhisbookkeeper,andPAYGIsalwaysuptodatewiththeATO.

Jack runs a cleaning business with seven part-time employees. He still does a lot of things on paper but he does use his smartphone to stay in contact with customers and get things done. His bookkeeper looks after his BAS.

Day 03 months to go 2-3 weeks to go2 months to go

1 2

34

Employerassisted(payrollupgrade)

Pathway #4

Entities: 57,4438%marketshare

1 Discoveryphase

SUPPORTPLANFORCUSTOMERJOURNEYPathway#4:Employerassisted(payrollupgrade)

Persona:Jack’sCleaningBusiness

2 Engagementphase

4 In-syncphase 3 Transitionphase

• Awareness:co-marketwithpayrollsoftwarecompaniestobookkeepers

• PlanformostemployersinthisgrouptomoveintheLateMajorityphase

• Focusawarenessbuildfor3-4fourmonthperiodprior tothiswindow

• Bookkeeper isthemainpointofengagementsupportwiththeemployer

• ATOfocusessupporttobookkeeper atthispoint

• Introductionofincentivescriticalinthisphase

• Bookkeeper isthemainpointofengagementsupportwiththeemployer

• ATOrapidresponseteamprovidessupport tobookkeepersduringemployertransition

• ATOrapidresponseteamprovidessupport toemployersinspecialdemographics

• DemonstrationinpracticeofATOcomplianceandserviceguaranteesarecriticalinthisphasetomaintainingconfidenceandmomentuminchange

• Appropriateremindersandpromptsabout’new’processthroughout thecycleswillbeimportant

Appendix4–Samplecustomerjourney

39

TheATOisabletomapemployerdemographicsagainsttheseregions,especiallyhoninginonruralandremoteregions.Basedontheseestimates,thereareabout6,250employersintheseregionsthatlacksomeorallofthedigitalskillsrequiredand/orarelikelytoneedhelpinimplementingSingleTouchPayroll.

Source: RDA website, https://rda.gov.au/my-rda/find-my-rda.aspx ATO Master Employer file (2016) Small Business Counts – Small Business in the Australian Community (Australian Small Business and Family Enterprise Ombudsman, 2016)

Top5Industries:• Agriculture,Forestries &Fishing• Construction• Retail• Accommodation&Food• Professional,Scientific&Technical

Top4Payroll:• MYOB• Trimar• Xero• Reckon

TopMarketingConnectors:• Peers• Clients&customers• Suppliers&competitors• Websitesandpublications• Conferences,seminars• Industryassociations• Consultants

Rural&RemoteAustralia• Comprising about30regionalcommunities• Over6,250employerslackdigitalcapability

Demographics(nosoftware)• Overhalfhavebeeninbusiness

over20years• About75%ofbusinessownersare

45+yearsofage• 65%useAustraliaPost(Billpay)to

payATO• 95%payBASquarterly

Appendix5–Ruralandremoteregions

* Based on number of employers

reporting to ATO using their software

40

Appendix6–Keyreferences

2014 Infusion Small Business Owner Attitudinal Segmentation Research Report (Infusionsoft, August 2014). Also 2016 report.

2016 Payroll Benchmarking Report (Australian Payroll Association, 2016)

Business Use of Information Technology, selected indicators, by employment size, by industry, 2014-15 (ABS Data Series No. 816600009, 2014-15)

Digital Models for a Digital Age: Transition and Opportunity in Small Business Banking (McKinsey & Company, January 2013)

Good practice checklist for small business (CPA, June 2015)

ICB Annual Survey 2016 (Institute of Chartered Bookkeepers, 2016)

Making Tax Digital for Businesses, Exploring Small Business and Agent attitudes and engagement with Making Tax Digital, Research Report 431 (HMRC, February 2017)

Managing Pay As You Earn in real time: challenges faced by micro-employers, Research Report 431 (HM Revenue and Customs, August 2016)

NBN Broadband Index (National Broadband Network - NBN, 2016)

PAYE (UK.GOV, 6 June 2016)

PAYE Intermediary Scheme (Inland Revenue – NZ, 11 May 2015)

PAYE Realtime Information Post-Implementation Review, Submission to HMRC (ICAEW 163/16)

PAYE Realtime Information (RTI) ‘on-or-before’ requirements – Research with micro and small employers, Report 369 (HMRC, September 2015)

PAYE Reporting – Better Administration of PAYE (NZ Minister of Revenue, November 2016)

RTI – Post-implementation Review, Submission to HMRC (Association of Taxation Technicians, 15 April 2016)

Regional Australians Online (The Australian Communications and Media Authority - ACMA, 28 April 2016) http://www.acma.gov.au/theACMA/engage-blogs/engage-blogs/Research-snapshots/Regional-Australians-online

Sensis e-Business Report – The Online Experience of Small and Medium Enterprises (Sensis, 2015). Also reports for 2011-2014.

41

Single Touch Payroll collated DCM, (Australian Tax Office, April 2017)

Single Touch Payroll – Stage 1 user research report (Australian Tax Office, October 2016)

Single Touch Payroll – Stage 2 user research report (Australian Tax Office, 6 April 2017)

Single Touch Payroll – Stage 3 user research report (Australian Tax Office, 13 April 2017)

Small Business Counts – Small Business in the Australian Community (Australian Small Business and Family Enterprise Ombudsman, 2016)

Stay Smart Online. Small Business Guide (Australian Government, 2016)

Streamlining business reporting with Single Touch Payroll, Media Release (Minister for Small Business and the Assistant Treasurer, 21 December 2015)

SuperStream Implementation - Small Business Checkpoint (ATO, June 2016)

SuperStream Small Business Implementation Report (Colmar Brunton,1 July 2016)

The Time, Money and Effort It Takes for SME’s to Comply (Inland Revenue – NZ, November 2016)