Guide · Updated 17 August 2026
Single Touch Payroll Phase 2, explained
What's reported with every pay run, why Phase 2 broke a lot of payroll files, and the errors we find most often when we take over a payroll.
What is Single Touch Payroll Phase 2?
STP requires employers to report salary, PAYG withholding and superannuation information to the ATO with every pay run rather than annually. Phase 2 expanded what must be sent: gross pay is disaggregated into components — ordinary time, overtime, bonuses and commissions, paid leave, directors' fees, allowances by type, salary sacrifice — plus an income type and employment basis for each employee, and TFN declaration details. There's no separate annual payment summary; instead you make a finalisation declaration by 14 July, which is what releases employees' income statements as 'tax ready'.
- Reported with every pay run
- Gross disaggregated into components
- Income type and employment basis per employee
- Finalisation declaration due 14 July
What Phase 2 actually changed
Under Phase 1 you reported a single gross figure. Phase 2 requires the components separately, because government agencies use the data for income testing — Services Australia, child support, and the ATO's own prefill. The practical consequences:
- Allowances must be reported by type (travel, laundry, tool, meals, car, qualification), not lumped into gross.
- Paid leave is reported separately by category, including cash-out of leave and termination leave payments.
- Salary sacrifice is reported as its own item rather than netted off gross.
- Income type — salary and wages, closely held payee, working holiday maker, labour hire — must be set per employee.
- Directors' fees and closely held payees have their own treatment.
The setup errors we find most
Almost every problem we see traces back to the initial Phase 2 transition rather than day-to-day processing:
- Allowances still mapped to a generic 'other' category, or buried in ordinary earnings.
- Closely held payees (family members, directors) reported as ordinary employees, or not reported at all.
- Salary sacrifice deducted from gross instead of reported separately, understating reported income.
- Termination payments coded as ordinary earnings — which misstates both tax and the employee's income statement.
- Employment basis left at the software default, so casuals appear as full-time.
These misreport quietly, for years, until an employee's prefill looks wrong or Services Australia queries an income figure.
Closely held payees
A closely held payee is someone directly related to the business — a family member, a director, a beneficiary. Small employers have concessional options, including reporting these payees quarterly rather than each pay run, but the amounts must still be reported and finalised. Doing nothing isn't one of the options, and it's the most common gap in single-director companies.
Finalisation and what employees see
By 14 July you make a finalisation declaration for each employee. Until you do, their income statement shows as 'not tax ready' and, in practice, their tax return waits. Late finalisation is the reason a lot of employees can't lodge in July — and it reflects on the employer.
Amendments after finalisation are possible: correct the payroll data and re-finalise. Better to check the year's totals against your accounts before declaring — the reconciliation takes an hour and prevents a fortnight of questions.
Frequently asked questions
Do I need STP if I only employ one person?
Yes. STP applies to all employers, including single-director companies paying a director's wage. Concessions exist for closely held payees, but the reporting obligation itself doesn't disappear.
What if I make a mistake in a pay run?
Correct it in the next pay event — STP is cumulative year-to-date, so the corrected figures overwrite the earlier ones. Mistakes discovered after finalisation are fixed by amending and re-finalising.
Is STP the same as paying super?
No. STP reports super liability information; it doesn't pay anything. You still transfer contributions to funds by the quarterly deadlines. The ATO now cross-matches reported liabilities against fund receipts, which is how late super is detected quickly.
What happens if I don't finalise by 14 July?
Employees' income statements stay 'not tax ready', delaying their returns, and penalties can apply for failing to report. It's a same-day job if the payroll is reconciled — the delay is almost always a reconciliation problem, not a reporting one.
Can my accountant do STP for me?
Yes — as registered BAS Agents we run pay events, report through STP and complete finalisation. It's part of our payroll service.
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