Single Touch Payroll (STP) has transformed the way Australian employers report payroll information to the Australian Taxation Office (ATO). With the introduction of STP Phase 2, the reporting requirements have expanded, providing more detailed and accurate data. Understanding STP Phase 2 and its impact on STP finalisation is essential for businesses to remain compliant and avoid potential penalties.

What Is STP Phase 2?

STP Phase 2 is the second stage of the Single Touch Payroll initiative. While the initial STP system focused on basic payroll information—such as salaries, wages, and Pay as You Go (PAYG) withholding—Phase 2 introduces more comprehensive reporting. It requires employers to report additional payroll details, including:

1. Employee allowances, deductions, and expense reimbursements
2. Lump sum payments and leave accruals
3. Employee classification, such as job title or location
4. Superannuation contribution breakdowns

The goal of STP Phase 2 is to provide the ATO with more granular, real-time payroll data while simplifying processes like income reporting, superannuation, and tax reconciliation.

How STP Phase 2 Changes Payroll Reporting

The key difference between STP Phase 1 and Phase 2 lies in data depth and granularity. Under Phase 2, payroll software must capture and report additional details for each employee, which may include:

1. Specific allowance types (e.g., car, travel, or uniform allowance)
2. Deduction types (e.g., union fees, salary sacrifice)
3. Overtime classifications
4. Termination payments and pay instead of leave

These additional reporting requirements mean that businesses must update their payroll systems and processes to ensure accuracy. Payroll software providers have developed Phase 2-compliant systems, but employers must ensure their setups are correct before finalising STP submissions.

Impact of STP Phase 2 on STP Finalisation

STP finalisation is the process where an employer confirms that all payroll information for the financial year is complete and accurate. With Phase 2, the finalisation process has become more detailed:

1. More Detailed Verification

Employers now need to review additional fields, such as allowance types and deductions, to ensure accuracy before submitting the finalisation.

2. Potential for Increased Errors

With more data to report, the likelihood of discrepancies or misclassifications can rise. Employers must carefully check entries for each employee.

3. Improved Employee Reporting

Once STP Phase 2 finalisation is complete, employees’ income statements are more accurate and comprehensive, reflecting all allowances, deductions, and superannuation contributions.

4. Compliance and Penalty Considerations

Inaccurate STP finalisation under Phase 2 can lead to compliance issues or penalties from the ATO. Correct and timely reporting is essential to avoid fines and to ensure employees can lodge their tax returns without delays.

Preparing for STP Phase 2 Finalisation

To ensure smooth STP finalisation under Phase 2, employers should:

1. Update Payroll Software: 

Ensure your payroll system is Phase 2 compliant and configured correctly.

2. Review Employee Data: 

Confirm all employee allowances, deductions, and classifications are accurate.

3. Train Payroll Staff: 

Ensure staff understand the new reporting requirements and finalisation procedures.

By taking these steps, businesses can minimise errors and ensure compliance with the ATO.

Conclusion

STP Phase 2 represents a significant advancement in payroll reporting, providing more detailed data to the ATO and improving the accuracy of employee income statements. Employers who adapt to STP Phase 2 will not only meet regulatory requirements but also provide their employees with more detailed and accurate payroll reporting, supporting smoother tax lodgement and improved transparency in financial operations.