Single Touch Payroll (STP) is the ATO's digital reporting system requiring employers to report payroll information — salaries, PAYG withholding, and super — directly to the ATO each pay run. Rather than annual reporting, employers report in real time, giving the ATO and employees continuous visibility.
STP Phase 2, mandatory from 1 January 2022, expanded the required information in each pay event. Understanding the requirements and ensuring correct configuration is essential for compliance.
Phase 1 reported aggregated amounts — total gross, total PAYG, total super. Phase 2 requires disaggregated reporting, breaking payments into specific categories so the ATO and Services Australia can distinguish income types.
Income types: Each payment reported under a code — Salary and Wages (SAW), Closely Held Payees (CHP), Working Holiday Makers (WHM), Labour Hire (LAB), etc. Most employees are SAW, but wrong codes create reporting errors.
Tax treatment codes: Each employee requires a code reflecting residency status, tax-free threshold, HELP/HECS debt, and Medicare levy variations.
Disaggregated gross: Rather than a single gross amount, break down into ordinary time earnings, overtime, bonuses, directors' fees, paid leave by type, allowances by type, lump sums, and termination payments.
Allowance disaggregation: Report by type — car/travel, meals, laundry, tools, tasks, qualifications, or other — allowing the ATO to verify treatment against Award provisions.
The most frequent: incorrect income type coding (especially labour hire and WHMs), wrong tax treatment codes, failure to disaggregate allowances, inconsistent overtime vs ordinary hours reporting, incorrect OTE calculations for super (OTE for super isn't always the same as ordinary time earnings for Award purposes), and wrong formatting of lump sums or termination payments.
The ATO's transition leniency is ending. Late STP penalties are $313 per 28-day period per statement. Incorrect reporting triggers ATO review and correction requirements. STP data now feeds into employees' myGov accounts, pre-filling tax returns and determining government payment eligibility. Wrong STP reporting means wrong tax returns and payment eligibility for your employees — creating problems for them and enquiries back to you.
STP Phase 2 compliance requires: correctly configured payroll software supporting Phase 2, accurate employee data including current TFN declarations, proper classification of all payment types into correct categories, and regular review for new employees and changed circumstances. For managed payroll services, STP compliance is handled entirely by the provider — they configure, process, lodge, monitor for errors, and handle annual finalisation.
STP has changed the employee experience as much as the employer obligation. Understanding this helps you manage employee expectations and queries.
Pre-filled tax returns. STP data now pre-fills employees' tax returns in myGov. Employees can see their income, tax withheld, and super contributions throughout the year — not just at EOFY. If your STP data is wrong, employees will see incorrect figures in their myGov and may contact you for explanation. The best way to prevent employee queries is to ensure STP data is accurate from the start.
Services Australia visibility. STP Phase 2 data feeds into Services Australia systems, which use the disaggregated income data to assess eligibility for government payments (Centrelink, Family Tax Benefit, Child Care Subsidy). If you incorrectly classify a bonus as ordinary earnings, or report overtime as ordinary time, it can affect your employees' government payment eligibility — creating problems for them and enquiries back to you.
No more payment summaries. STP has replaced the traditional PAYG payment summary (group certificate). Employees access their income statement through myGov. You're still required to finalise your STP data by 14 July each year — this is the digital equivalent of issuing payment summaries. Late finalisation means employees can't lodge their tax returns.
Multiple pay categories. Businesses that pay a mix of salary, commission, allowances, and overtime need careful mapping of each payment type to the correct STP category. This mapping should be reviewed whenever a new payment type is introduced.
Salary sacrifice complexity. Salary sacrifice arrangements — particularly those involving super and non-super components — require specific STP reporting. The reportable employer super contribution amount, the pre-tax sacrifice amount, and the post-tax residual must all be reported correctly in separate fields.
Employment termination payments. ETPs have their own STP reporting requirements, including specific payment type codes, tax-free components, and taxable components. Getting ETP reporting wrong creates issues for both the employee's tax return and your own ATO compliance record.
The annual finalisation process. By 14 July each year, employers must finalise their STP data — this is the digital equivalent of issuing payment summaries. Finalisation involves verifying that all pay events for the financial year are accurate, making any necessary amendments, and submitting the finalisation declaration through your payroll software. Late finalisation means your employees cannot complete their tax returns and may miss refund processing deadlines. For managed payroll clients, the provider handles the entire finalisation process, including identifying and correcting discrepancies before the deadline.
Book a free payroll review with Valont, or check your Award Complexity Score to assess overall payroll risk.