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Single Touch Payroll Phase 2

Jan 24, 2023

  • 2min

Single Touch Payroll Phase 2

Industry News
Single touch payroll (STP) is being expanded throughout 2022 to reduce the burden on employers who have to report employee information to multiple government agencies. The expansion will help streamline the process for employers to report more information to different government agencies.

From 1 July 2019, STP became mandatory for all businesses that withheld PAYG contributions for employees or contractors and Single Touch Payroll Phase 2 (STP2) is a continuation of this and remains compulsory.
Unless you have an exemption or deferral, you will need to start transitioning to STP if you have yet to do so. The mandatory start date for Singly Touch Payroll Phase 2 (STP2) reporting is 1 January – however, the date is flexible not to add further burden to employers. Check what the date with your payroll software is. Xero, for example, has an exemption until 31 March 2023.

The main change between STP and STP2 is how you report income. Throughout STP, employers had to report a single gross income for their employees. In STP2, all income must be separated into different income types. 

For example: 

In STP, if your employee earns $20,000 in wages and $1000 in overtime, you report this as $21,000 gross.

In STP2, you report the employee’s earnings as $20,000 in wages and $1000 as overtime. You can see detailed examples on the ATO website. 

What is still included in gross payments:

  • Ordinary Hours
  • Casual Loading
  • Shift Penalties (where an employee is paid penalty rates for working the ordinary span of hours. This does not include overtime)
  • Travel Time
  • Training Time/TAFE hours
  • Piece Rates
  • Breach of rest break (Even though this is paid at overtime rates, it should be reported as gross. This may mean you need to set up separate pay items for overtime rates paid for breaks not taken)
  • Workers Comp (Return to Work) where the employee is at work performing duties

Annualised Salary

If you have employees with annualised salaries, the requirement is to split the annualised salary into each of its components. This may include

  • Base salary as gross payments
  • Annual leave loading (reported with other usual leave such as annual leave, paid leave type “O”)
  • An allowance for reasonable overtime, e.g. 2 hours per week (reported as overtime)
  • Allowances for tools, phones etc. (reported under allowances)

Other changes include:

Income types

To give more flexibility in the ways in which you pay employees, in STP2, employers must:

  • Identify payments you make to your employees with specific tax consequences
  • Make it easier for them to complete their induvial income tax return
  • Help the ATO identify where you are using a concessional reporting arrangement

Tax file number declaration

Employers are currently required to submit a TFN declaration to the ATO. STP2 will incorporate the employee’s tax details via STP reporting instead of submitting separate documents to the ATO.

Termination reason 

It will be mandatory to specify a reason for an employee’s termination in STP2. 

Separation Certificate

The introduction of the termination reason will mean that employers will no longer have to provide a separation certificate in most cases. 

Paid leave 

As part of the changes in reporting income, paid leave will no longer be included as part of the gross earnings when reporting via STP. 

Most paid leave will be allocated under Leave type “O” in STP2. 

Allowance types 

Previously, some allowances have been able to be reported as gross income. In STP2, all allowances will have to be reported separately in most income types. 

A useful reference for classifying allowances can be found here: STP2 reference guide | Australian Payroll Association (austpayroll.com.au)

Although these changes sound like more work for the employer, most businesses will already be transitioning to STP2. Software such as Xero and MYOB have already integrated the changes to help make the transition as smooth as possible. 

There are quite a few changes in single touch payroll phase 2 that we, as a business, are also trying to wrap our heads around. If you need further assistance, please talk to your bookkeeper or accountant.

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