What is Single Touch Payroll Phase 2?
Single Touch Payroll (STP) is the way you report your employees’ tax and super information to the Australian Taxation Office (ATO).
STP is part of the Australian Government’s commitment to streamlining employer reporting obligations and was legislated on 16 September 2016 as part of the Budget Savings (Omnibus) Act 2016.
Since these changes have come into effect, most employers are now reporting through STP – unless they have some kind of exemption or transition deferral.
STP Phase 2 became mandatory as of January 1, 2022.
It is designed to:
- Reduce the burden of reporting for employers who need to report information about their employees to more than one government agency
- Support the social security system, administratively.
“STP Phase 2 is a way to report more detailed payroll and super information to the ATO — every time you pay your employees.”
How Single Touch Payroll Phase 2 works
When the Australian Government first introduced the STP, it explained that it is a method to send tax and super information from your STP-enabled payroll or accounting solution to the ATO – and this underlying explanation does not change with STP Phase 2.
In STP Phase 2, the STP solution will send the ATO a report with the necessary information required by the department, namely:
- The amount of remuneration your business pays
- The type of income you pay your employees
- The types of incomes these are, falling into the brackets of gross pay, paid leave, allowances or overtime.
The system will also report to the ATO on:
- Any details of Pay As You Go (PAYG) withholding and the amounts you have withheld from the payments you have made
- Information about how you came about calculating these amounts. This requires a copy of your employee’s TFN declaration here.
STP Phase 2 also reports on an employer’s superannuation liabilities.
How to report employment and taxation information through STP Phase 2
There are different factors that will determine how much an employer needs to withhold from an employee’s salary.
Specifications for these will usually be provided in the TFN declaration or other employment information the employee provided at the beginning of their tenure.
The ATO requires that an employer provide the information about an employee’s commencement or cessation date and other information that filters through from government agencies too.
Each STP report will now also include this information.
“With STP Phase 2, you no longer need to lodge separate TFN declarations or employment separation certificates — the payroll report handles it automatically.”
STP and the TFN declaration
You will still need to obtain a completed TFN declaration from your employees, as STP Phase 2 doesn’t change the way your employees give you information about their tax circumstances.
However, when you start reporting through STP Phase 2, the employment and taxation information in your STP report will replace sending TFN declarations to the ATO.
You can continue to send TFN declarations to the ATO if it supports your other business processes, such as establishing an employment relationship before requesting stapled super fund details.
Previously, TFN declaration information sent to the ATO was never updated, but with STP Phase 2, the employment and taxation information you report through STP is updated when an employee’s circumstances change.
Sometimes, the information may change even though the employee has not given you a new TFN declaration form.
You don’t need new TFN declarations from your existing employees to start reporting using STP Phase 2.
EXAMPLE
Dennis started working for Margaret on 21 August 2012 on a full-time basis.
When Dennis started, he provided a TFN declaration form, citing he would claim the tax-free threshold and had no HECS loan.
When reporting through STP Phase 2, the employment and taxation information Margaret reported was:
- commencement date of 21 August 2012
- employment basis of F (full time)
- tax treatment of RTXXXX.
In May, Dennis commenced university study and agreed with Margaret that from the next pay period, his work status would change from full-time to part-time.
Dennis also gave Margaret a withholding declaration form, telling Margaret that he is taking on a HECS loan.
Margaret updated her payroll with the information about Dennis’s change in circumstances so she can continue to correctly withhold from his pay.
The employment and taxation information in Margaret’s STP reporting changes to:
- commencement date of 21 August 2012
- employment basis of P (part-time)
- tax treatment of RTSXXX.
Transitioning from STP Phase 1 to STP Phase 2 reporting
You can transition to STP Phase 2 as soon as your STP solution is upgraded.
The way you transition from STP Phase 1 to STP Phase 2 reporting will depend on your circumstances and the solution you use.
If transitioning to STP Phase 2 reporting means you also need to change your payroll solution, see Changing your payroll solution or employees’ Payroll IDs during a financial year.
Get help with STP Phase 2
There is some great information available about transitioning to STP Phase 2 on the ATO website, but this will only take you so far.
Managing this process needs to become part of your regular workload to manage your employees and it makes sense that you want a business accountant specialist to guide you and to ensure you have everything set up correctly.
At North Advisory we recognise that each and every business has different accounting needs and there is no one-size-fits all accountancy model that can competently meet the needs of your business.
Our team members are specialists, trained to manage your specific business situation and finances and tailor our solutions to your specific situation.
We know exactly what you need to do each month to meet your regulatory requirements and ensure you work within the bounds of compliance.
We are on hand to discuss the needs of your business in an obligation-free manner, including how you can ensure your transition to STP Phase 2 is smooth and simple.
For more information, contact us today.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
STP Phase 2 Is About Better Reporting, Not More Tax
The changes improve data accuracy and transparency but don’t increase tax obligations or payment frequency.
Employers Must Update Payroll Records
Correctly categorising income types, allowances and employee details is essential for compliance under Phase 2.
Software Readiness Is Key
Ensuring your payroll software is updated and configured correctly will make the transition smoother.
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Frequently Asked Questions
What is Single Touch Payroll (STP) Phase 2?
STP Phase 2 is an expansion of the existing STP system, which requires employers to report more detailed payroll information to the ATO with each pay run, including income types, employment conditions, and tax components.
Who does STP Phase 2 apply to?
STP Phase 2 applies to all employers who are already reporting through STP, regardless of business size. This includes small businesses with only one or two employees.
Does STP Phase 2 change how employees are paid?
No. STP Phase 2 doesn’t change how or when employees are paid. It only changes the type and level of information reported to the ATO.
Do I need new payroll software for STP Phase 2?
In most cases, no. Most payroll software providers have updated their systems to support STP Phase 2, but employers may need to complete a setup process or update employee details.
What happens if I don’t comply with STP Phase 2?
Failure to comply can result in reporting errors, follow-up from the ATO and potential penalties. Businesses may also need to apply for a deferral if they’re not ready.
What is Single Touch Payroll (STP) Phase 2 and what do employers need to do?
North Advisory explains that Single Touch Payroll (STP) Phase 2 is an expansion of STP reporting, where businesses continue to report payroll information to the ATO through STP-enabled software, but with more detailed reporting categories and labels. The core concept stays the same — you lodge payroll and tax information digitally each time you pay staff — but Phase 2 improves the way employee payments are reported to support better compliance and reporting accuracy.
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