Single Touch Payroll Phase 2: what employers must report

What STP Phase 2 changed

Single Touch Payroll Phase 2 expanded the data employers report to the ATO with each pay event. This change aimed to streamline government processes and reduce the administrative burden on businesses.

The commencement date for Phase 2 was 1 January 2022. The transition for most digital service providers occurred throughout 2022 as they updated their software to accommodate the new reporting requirements.

A key benefit of Phase 2 is the reduction of duplicate reporting. For example, Services Australia now uses the data reported through STP to assess eligibility for income support.

What you now report

Employers now report additional information about their employees through Single Touch Payroll. This includes details about the employment basis, such as whether an employee is full-time, part-time, casual, or engaged through labour-hire. When an employee ceases employment, the reason for cessation must also be reported.

The gross income reported is now disaggregated, meaning employers must provide separate amounts for gross salary, overtime, allowances (categorised by type), bonuses and commissions, and paid leave (also by category). Information about salary-sacrifice arrangements, including the amounts and the purpose of the sacrifice, is also required. Employers should ensure they are Payday Super readiness to accurately report this data.

Finally, the Tax File Number declaration information is now embedded within the STP data, rather than being lodged as a separate document. If an employee is a working-holiday-maker, the country code must be reported.

What commonly trips employers up

Many employers encounter challenges when fulfilling Single Touch Payroll reporting obligations. A frequent error involves incorrectly classifying payments. Allowances, for example, are sometimes reported using the 'other' code instead of the specific code that accurately reflects the allowance type, such as cents-per-kilometre, travel, meals, qualifications, tasks, tools, or similar. This misclassification can affect the accuracy of employee income records.

Another common issue relates to salary-sacrifice arrangements. When salary-sacrifice amounts are not reported separately, it can distort the Ordinary Time Earnings (OTE) figure used for superannuation calculations and the amounts displayed on income statements. Accurate reporting of salary-sacrifice is essential for correct payroll processing and employee entitlements.

Finally, employers sometimes fail to record the cessation reason when an employee leaves employment. This omission can create difficulties for departing employees when they lodge their tax returns or seek to claim certain benefits. Closely-held payees also present ongoing compliance challenges; employers must regularly review whether an exemption still applies.

What to do

Employers must take specific steps to ensure compliance with Single Touch Payroll Phase 2 reporting requirements. The first action is to verify that your payroll software has been updated to meet Phase 2 specifications. Most software providers completed this transition in 2022.

Next, carefully audit your allowance and leave codes to ensure they align with the ATO’s Single Touch Payroll Phase 2 specifications. This is crucial for accurate reporting. Also, review the cessation-reason field each time an employee’s employment ends.

Finally, before finalising employee income statements, reconcile your Single Touch Payroll year-to-date totals with your payroll ledgers. This reconciliation process helps to identify and correct any discrepancies. Use the compliance calendar tool to manage reporting deadlines.