If you employ anyone in Australia, Single Touch Payroll (STP) is already part of your world – whether you’ve thought much about it or not. Every time you run a payroll, your payroll software is sending a report directly to the ATO in real time. That’s STP in action.
Here’s what it actually means for you as an employer, including what changed with Phase 2.
What is Single Touch Payroll?
Single Touch Payroll is the ATO’s real-time payroll reporting system. Instead of submitting payroll information at the end of the year, employers now report PAYG withholding and superannuation details to the ATO each time they process a pay run – automatically, through their payroll software.
STP has applied to all Australian employers since 1 July 2019, regardless of how many staff you have. If you’re running payroll and haven’t set it up, you’re non-compliant.
It’s worth being clear on what STP does and doesn’t do:
- It is a reporting requirement – your payroll data goes to the ATO with each pay run
- It does not change when or how often you pay PAYG withholding or super
- It does not change your BAS obligations
- It does replace the need to issue payment summaries – employee income statements are now published directly to their myGov accounts
Why did the ATO introduce STP?
STP was designed to streamline employer reporting, make payroll data digital and more accurate, and give the ATO greater visibility over PAYG and super obligations in real time – including for contractors. It also reduces the administrative burden at year end, since the annual payment summary process is largely replaced by the ongoing STP reporting cycle.
What changed with STP Phase 2?
STP Phase 2 rolled out from 1 January 2022, with payroll software providers given staggered transition dates. For businesses using Xero, the Phase 2 deadline was 31 March 2023. Both phases are now fully live.
Phase 2 expanded what you need to report and who you need to report for.
What you now need to report
Under Phase 2, gross income can no longer be reported as a single lump sum. It must be broken into separate categories:
- Gross wages
- Paid leave
- Allowances (broken into subcategories)
- Overtime
- Bonuses and commissions
- Directors’ fees
- Lump sum wages
- Salary sacrifice
Additional fields were also introduced, including tax scale types, TFN declarations, country codes for working holiday makers and child support deductions.
Who you now need to report for
Phase 2 extended reporting to cover two additional groups beyond standard employees:
Closely held employees – these are people directly related to the entity paying them, including family members of a family business, company directors or shareholders, and trust beneficiaries. If you have more than 20 employees in total, these payments must be included in your regular STP reporting. Smaller businesses can choose to report them on the same cycle as their activity statements instead.
Note: STP does not require reporting of trust distributions or shareholder dividends – only salary, wages and directors’ fees.
Contractors treated as employees for super purposes – the ATO has tightened its approach to the employee vs contractor distinction in recent years. If you’re required to pay super for a contractor, those payments now need to be reported through STP as well. You can still pay these contractors via invoice, and their payments are picked up through Xero’s STP reporting using their ABN.
If you’re not sure whether your contractors fall into this category, it’s worth getting it sorted – the ATO is actively looking at this area.
What stayed the same?
Quite a bit, actually:
- The way you file your pay run (through your payroll software, such as Xero)
- The due date of each STP report – it’s submitted as you process the pay run
- End of year finalisation requirements
- Underlying tax and super laws
How is STP handled in practice?
For most businesses, STP runs in the background through payroll software. Each pay run triggers an automatic report to the ATO – there’s no separate lodgement required.
If you’re using Xero, the reporting happens as part of the pay run process. The main setup work involves making sure employee records are complete and pay items are categorised correctly for Phase 2 – particularly the breakdown of gross income components and the identification of closely held employees or contractor-employees.
What if I’m not set up for STP?
If you’re employing people and haven’t set up STP, you need to act. Non-compliance can result in ATO penalties, and the longer it’s left, the more historical reporting may need to be reconciled.
The good news is that once it’s set up correctly through your payroll software, the ongoing reporting is largely automated.
If your payroll setup needs attention – or you’d rather hand off the whole thing – our payroll and bookkeeping services are designed for exactly that. We manage the setup, the ongoing processing and all the ATO obligations, so nothing slips through.
As always, this is general information only – not personal tax or financial advice. If you’d like to talk through your specific payroll situation, get in touch.
