Single Touch Payroll (STP): What It Is and What Business Owners Need to Know
Drowning in Payroll? It should not be a second full-time job. The Australian Government brought in Single Touch Payroll (STP) to simplify reporting wages, PAYG withholding and superannuation to the ATO, moving from annual summaries to real-time digital reporting each pay cycle. In this guide, we explain what STP is, how STP Phase 2 changes your obligations, mistakes to avoid, and a straightforward checklist so you can stay on top of it without stress. You will also receive a quick example of what “good” will look like and links to trust-worthy resources so you can drill down as needed.
What is Single Touch Payroll?
Single Touch Payroll (STP) is an ATO solution that reports your payroll information, gross wages, PAYG withholding and superannuation to the ATO each pay cycle you process using STP-enabled software. It removes much of the old year-end reporting and enables employees to view “tax-ready” payment summaries sooner in myGov.
Why It Matters?
- Reduced paperwork at year-end (most payment summaries are no longer required).
- More accurate, up-to-date information for ATO and Services Australia.
- Employees have visibility of year-to-date earnings in near real time.
STP Phase 2: What's New?
STP Phase 2 expands the scope of what you report, providing government agencies with more detailed, structured data. Key changes are:
- Disaggregated earnings: bonuses and allowances, overtime, and ordinary time reported separately.
- Types of income and country codes where relevant.
- More detailed employment and tax information, with less need to make further declarations when circumstances change.
What It Means for Business Owners
Your payroll software must be Phase 2 compliant, and each pay item must be mapped to the correct STP category by your payroll officer. Once correctly set up, reporting is automatic when you process payroll.
How Single Touch Payroll Works (Step-By-Step)
- Use STP-enabled software and verify Phase 2 mapping via earnings, allowances, deductions and leave.
- Process your pay normally. The pay results are concluded in an STP pay event to the ATO, including year-to-date figures.
- Fix mistakes early using your next regular pay event or an update event.
- Conclude at the end of the year so workers’ income statements are tax-ready in myGov (most employers by 14 July; closely held payees generally by 30 September).
What You Must Report Using STP (Phase 2)
- Itemised Salary and wages, allocated into the right OTE, overtime, allowances, bonuses.
- PAYG withholding and super.
- Full-time, part-time, casual employment type and income type (e.g., salary & wages, working holiday maker, closely held payee).
- Leave payments, lump sum E (if paid), RESC, and RFBA at year-end.
Tip: Stuck on how to code an allowance or a deduction? Check out the ATO’s Phase 2 employer reporting guide before your next pay period.
Simple Mistakes with STP and How to Fix Them
- Incorrect pay-item mapping: Allowances or overtime assigned as standard earnings, so your data will not reconcile with Phase 2 rules. Review the software mapping wizard and double-check against the ATO guide.
- Poor or late event reporting: Each pay run must be reported by payday (if you don’t defer). Set calendar reminders and add STP submission to your payroll checklist.
- Delaying error corrections: Incorrect year-to-date values can impact employees and Services Australia determinations. Have a simple corrections log and deploy patches in the next event.
- Finalising after the due date: The finalisation date for most employers is 14 July, while closely held payees are typically 30 September. Finalise early to avoid a last-minute scramble.
Fast Wins to Streamline Your Single Touch Payroll
- Perform a Phase 2 health check: verify mapping for each allowance and deduction.
- Automate Reconciliations: simplify EOFY with payroll checks each month, wages, PAYG and super.
- Document Fixes: note what you have altered, when, and why; check the YTD updated in the next run.
- Reminders: establish recurring tasks for payday lodgements and year-end finalisation.
- Train payroll users: a 30-minute refresher avoids repeating errors.
Practical Example: Getting Phase 2 Right
Scenario: A week’s pay is given to a site supervisor by a construction company. Their salary consists of ordinary time, overtime and a site and tool allowance
What “good” looks like
- Every element is individually itemised and accurately mapped in the software.
- Superannuation is calculated on items that super applies to (refer to your award) and excluded where appropriate.
- The STP pay event displays year-to-date amounts each time it runs.
- A wrongly coded allowance is corrected in the next update event, keeping ATO and employee records current.
How Acctivate Business Accountants Can Help with STP Using Xero
For SMEs, we make Single Touch Payroll simple and compliant from day one. Our team configures Xero Payroll (STP Phase 2–enabled), mapping earnings, allowances, deductions and leave to the correct ATO categories, and running a quick health check against your awards and current processes.
We set up clean workflows for on-or-before payday lodgements, build monthly reconciliations (wages, PAYG, super) to prevent EOFY surprises, and document a clear error-correction process using Xero update events. At year-end we guide the finalisation declaration so employees see Tax ready in myGov on time. Need help with edge cases—closely held payees, allowances, back pay, or deferrals? We handle that too, and provide short, practical training for your payroll users so you stay confident and compliant without adding admin to your week.
Single Touch Payroll is compulsory for almost all employers in Australia, and it’s a practical way to keep payroll compliant and maintain clean data throughout the year. With STP Phase 2, the ATO expects improved-quality information each pay run, but if your payroll mapping is accurate, compliance becomes part of your everyday workflow. Map pay items correctly, report on time, correct errors quickly and finalise on time. If you’d like guidance or help setting up and streamlining STP in Xero, get in touch with our team at Acctivate Business Accountants. Minor tweaks now can save big headaches later.