Single Touch Payroll Phase 2: What Australian Employers Need to Know

Single Touch Payroll changed the basic rhythm of employer reporting in Australia: instead of telling the ATO about wages once a year, you report every pay run, digitally, as it happens. STP Phase 2 then changed what's inside each of those reports, and that's where most of the practical work for employers sits today.

What STP is and why it exists

Under STP, your payroll software sends the ATO a "pay event" each time you pay staff, covering salaries and wages, PAYG withholding and superannuation information. The data flows into employees' myGov accounts and to Services Australia, which uses it to assess income-tested payments. The design intent is continuous visibility: the ATO sees payroll as it happens, employees see their year-to-date figures without waiting for a payment summary, and discrepancies surface early rather than at year end.

What Phase 2 changed

Phase 1 reported aggregated totals: gross, withholding, super. Phase 2 requires disaggregation: the same money, broken into categories that let the ATO and Services Australia understand what kind of income it is. There are four areas where the detail expanded.

Income types

Every payment carries a code identifying the kind of payee: standard salary and wages, closely held payees, working holiday makers, labour hire, and others. Most employees fall into the standard category, but the exceptions matter: labour hire arrangements and working holiday makers are taxed differently, and coding them wrongly misreports their position to the ATO.

Tax treatment codes

Each employee needs a code built from their circumstances: residency status, whether they claim the tax-free threshold, study loan debts, Medicare levy variations. The code tells the ATO which withholding rules you're applying. If the code doesn't match the employee's actual situation, either you're withholding incorrectly or you're reporting that you are.

Disaggregated gross

Instead of one gross figure, Phase 2 requires the components: ordinary time earnings, overtime, bonuses and commissions, directors' fees, paid leave broken out by type, allowances broken out by type, and lump sums. This is the change with the biggest configuration burden, because your payroll system's pay items must each be mapped to the right reporting category.

Allowance detail

Allowances are reported by kind (travel, meals, laundry, tools and so on), which lets the ATO check treatment against Award provisions and helps employees claim correctly at tax time.

Where employers most often get it wrong

• Pay item mapping — items created years ago in the software mapped to the wrong Phase 2 category, so overtime reports as ordinary earnings or an allowance reports inside gross
• Tax treatment codes set once and never revisited, even when an employee's residency or study loan situation changes
• Income type errors for labour hire workers and working holiday makers
• Super earnings bases — the earnings used to calculate super are defined by super law and are not always identical to ordinary hours under the Award, and systems configured to treat them as the same can underpay super
• Termination payments and lump sums formatted incorrectly, which distorts the employee's pre-filled tax return

The common thread is that these are configuration problems, not arithmetic problems. The software reports exactly what it's told to report, every pay run, so a single mapping error repeats itself until someone audits the setup.

What to do if you find an error

STP has correction mechanisms: fix-forward in a later pay event, or an update event that amends previously reported figures. The right approach depends on what the error is and when it occurred, so raise it with your bookkeeper, payroll provider or the ATO promptly rather than letting wrong data keep flowing into employees' records. Because STP data pre-fills tax returns, errors left uncorrected become your employees' problem at tax time, which is both a compliance issue and a trust issue.

Keeping your obligations current

Reporting deadlines, concessions for particular employer types, and penalty settings all change over time, so treat the ATO's STP guidance as the source of truth rather than anything static, including this article. A sensible habit for a small business is a periodic payroll configuration review: check pay item mappings, tax treatment codes and super settings against the current rules, ideally after each Annual Wage Review when rates are being touched anyway. Payroll correctness is a property of systems, not effort, and STP has simply made the difference visible to the ATO in real time. That visibility is one more reason to systemise the back office before growth forces the issue.