What Is Single Touch Payroll (STP) and What Do Australian Employers Need to Know?

Single Touch Payroll (STP) is an ATO reporting system that requires Australian employers to send detailed payroll data. Unlike Phase 1, it breaks down income types, tax, allowances, and deductions in more detail, submitted through STP-enabled payroll software on or before payday.

This Single Touch Payroll guide explains what Phase 2 requirements mean in practice, how reporting works, and what has changed for businesses. You’ll also learn compliance rules, software setup, deadlines, and penalties so you can manage payroll correctly and stay ATO-compliant.

Simplified STP Reporting

Helping You Stay on Top of STP Reporting Requirements

Learn More

What Is Single Touch Payroll (STP)?

Single Touch Payroll (STP) is an ATO reporting system where Australian employers send payroll information directly to the Australian Taxation Office. It includes wages, tax withholdings, and superannuation, submitted through STP-enabled payroll software on or before payday to ensure reporting accuracy. Australian businesses outsource payroll services to ensure STP is reported accurately.

How Does STP Phase 2 Differ from STP Phase 1 for Australian Employers?

STP Phase 2 expands Australia’s payroll reporting system by requiring more detailed breakdowns of employee payments compared to Phase 1. Employers now report disaggregated income types, extra employee details, and additional event data directly to the ATO using STP-enabled payroll software.

STP Phase 1 vs STP Phase 2 Comparison

Here’s a detailed comparison of STP Phase 1 and Phase 2.

Who Must Use STP in Australia?

Single Touch Payroll is mandatory for almost all employers in Australia, meaning if you pay wages, you must report through STP-enabled payroll software to the ATO. Only a few specific groups qualify for exemptions or reduced reporting schedules under STP Phase 2 rules.

Employer STP obligations

All employers must use STP reporting to send pay event data, including wages, PAYG withholding, and superannuation, each time employees are paid. This applies regardless of business size once you have employees on payroll.

STP exemptions and special cases

STP exemptions are rare and typically apply to employers with no employees or very limited edge cases approved by the ATO. Closely held payees, such as family business owners, may report quarterly instead of per pay run under concessional arrangements.

How Does STP Phase 2 Work Through Income Types and Disaggregated Reporting?

STP Phase 2 works by breaking payroll into detailed income categories and sending them to the ATO through STP. Employers must report pay data on or before payday, including wages, allowances, deductions, and super, using STP-enabled payroll software.

STP Phase 2 Income Types

On or before payday rule

Under STP rules, employers must submit payroll data on or before pay day, not after. This “real-time” requirement ensures the ATO receives accurate, up-to-date information for each pay event, reducing end-of-year corrections and compliance risks.

How Does STP Reporting Work Step-by-Step from Pay Run to ATO Submission?

STP reporting follows a fixed payroll-to-ATO workflow where each pay run is processed, validated, and sent electronically using STP-enabled payroll software. The goal is to ensure accurate reporting with no manual end-of-year consolidation.

1. Set up employee payroll details

Enter employee information including TFN declaration, withholding declaration, salary setup, super details, and employment basis. This ensures correct STP Phase 2 classification from the first pay run.

2. Process the pay run

Run payroll as usual, including salary and wages, allowances, deductions, PAYG withholding, and super guarantee calculations. The system prepares STP-ready data automatically.

3. Validate STP data

Check for errors such as missing TFNs, incorrect income types, or mismatched super contributions. STP-enabled payroll software flags issues before submission to the ATO.

4. ATO processing and update events

The ATO receives and processes the submission, updating employee income records. If corrections are needed, an STP update event is sent to adjust year-to-date figures.

5. Finalise payroll data

At year-end, confirm all employee records through an STP finalisation event so income statements are marked “tax ready” in employees’ myGov accounts for tax return lodgement.

What Must Employers Do for STP Phase 2 Finalisation by 14 July Each Year?

STP Phase 2 finalisation is the year-end process where employers confirm employee payroll data is correct and mark it as “tax ready” in the ATO system. This must generally be completed by 14 July each year, so employees can access accurate income statements in their myGov accounts.

This step is essential because it locks year-to-date reporting, ensuring wages, PAYG withholding, and superannuation insights are finalised for tax return preparation and ATO prefill.

STP finalisation deadline (14 July rule)

Employers must complete the STP finalisation by 14 July for most employees. This confirms all payroll data for the financial year and ensures income statements are available for employees to lodge tax returns.

Income statement availability

Once finalised, employee records move from “year-to-date” reporting to “tax ready” status. This allows income statements to appear in myGov, enabling individuals to lodge returns using prefilled ATO data with wages, tax withheld, and super contributions.

Closely held payees finalisation rules

For closely held payees, such as family business owners, finalisation may follow different timing rules depending on reporting concessions. Employers must still ensure accurate STP Phase 2 reporting Australia obligations are met before finalisation.

Late finalisation corrections

If errors are found after finalisation, employers must submit an update event to correct year-to-date figures. The ATO uses updated data to adjust income statements and maintain reporting accuracy across payroll records.

What ATO Penalties Apply for STP Non-Compliance?

ATO penalties apply when employers fail to meet STP reporting obligations, including late or incorrect STP lodgements. These penalties are designed to enforce timely, accurate payroll reporting under STP Phase 2 requirements Australia. In practice, the ATO may apply penalty units, issue administrative warnings, or escalate enforcement depending on the severity, frequency, and intent of the non-compliance.

Penalty units for STP reporting failures

The ATO can apply penalty units for failures such as late STP reporting, incorrect data submissions, or repeated STP reporting errors penalties Australia. The total penalty depends on business size and how long the issue remains unresolved.

Late STP penalties

Late submission of the STP may trigger administrative penalties, especially if pay event data is consistently not reported on or before payday. Persistent delays increase compliance risk exposure.

Safe harbour provisions

Safe harbour rules may reduce or eliminate penalties if employers rely on a registered tax agent or BAS agent who fails to lodge on time. This applies only when the employer has provided correct and timely payroll information.

ATO deferral and concessional arrangements

Employers facing system issues or transition challenges may apply for ATO deferrals. Registered agents can also request additional time to implement STP Phase 2 requirements or fix reporting setup issues.

Which STP Phase 2 Software Is Best for Australian Businesses in 2026?

STP Phase 2 software helps Australian employers automate payroll reporting directly to the ATO, ensuring compliance with Single Touch Payroll Phase 2 requirements. Most businesses choose software based on ease of STP reporting, award compliance, integrations, and scalability rather than just price.

Top STP Phase 2 software options in Australia (2026)

How Do You Choose an STP-Compliant Payroll Provider?

An STP-compliant payroll provider ensures your business meets Single Touch Payroll Phase 2 requirements by automatically sending accurate payroll data to the ATO. The right choice depends on compliance strength, automation quality, and how well the system handles STP and ongoing updates.

1. STP Phase 2 ATO registration and compliance

Ensure the provider is listed as STP-enabled and supports full STP Phase 2 requirements, including income type disaggregation and update events.

2. Full STP Phase 2 reporting capability

The system must handle salary, wages, allowances, deductions, and STP Phase 2 disaggregated reporting, not just basic totals from Phase 1.

3. Payroll accuracy and ATO alignment

Look for built-in validation for PAYG withholding, super guarantee, and TFN rules to reduce errors before submission to the ATO.

4. Integration with accounting and HR systems

Good STP software integrates payroll with accounting tools like Xero or MYOB to streamline reporting, reconciliation, and BAS preparation using STP data.

5. Support for business size and complexity

Choose software that fits your structure, simple systems for small businesses, or enterprise-grade tools for complex payroll environments.

Outsourcing STP Payroll Reporting: Benefits for Small Businesses

Outsourcing STP payroll reporting means a registered provider manages your Single Touch Payroll Phase 2 requirements, including STP, superannuation, and ATO reporting. It helps small businesses stay compliant payday rules while reducing the risk of reporting errors penalties.

At Whiz Consulting, we help businesses simplify STP Phase 2 compliance by handling payroll setup, reporting, and ongoing ATO submissions through STP-enabled systems. This ensures accuracy, reduces admin load, and keeps your business fully aligned with requirements without the operational stress.