STP Phase 2: what your payroll software must report, and how to check it is set up

Every Australian employer must report salary, wages and other payments to the ATO through Single Touch Payroll (STP) each time they pay employees, generally on or before pay day. STP Phase 2, which started on 1 January 2022, requires more detail than the original version: gross pay is broken into components such as overtime, allowances, leave and bonuses, each employee has an income type and employment basis, and since Payday Super started on 1 July 2026, employers must also report qualifying earnings and super liability. Any payroll product you consider must be STP Phase 2 enabled, but "enabled" is not the same as "set up correctly": the reports are only as good as the pay categories you map.

This guide is part of the payroll and HR software comparison overview. It is general information; the ATO's STP pages and your software provider's documentation are the authorities on technical detail.

What STP reports and when

STP replaced the old payment summaries: employees see their income statement in myGov once you finalise. A late or wrong finalisation delays their tax returns and can create queries for you.

What changed with Phase 2

Phase 2 asks payroll software to send more granular data so that the ATO and other agencies can use it without asking employers again.

• Disaggregation of gross: instead of one gross figure, pay is split into categories such as salary and wages, paid leave (by type), overtime, allowances (by type), bonuses and commissions, directors' fees, lump sums, salary sacrifice and back pay.
• Income types: for example salary and wages, closely held payees, working holiday makers, foreign employment and others.
• Employment basis: full-time, part-time, casual, labour hire, voluntary agreement, death beneficiary or non-employee.
• Tax treatment codes: a code summarising how withholding is worked out for each employee (for example regular, actor, horticulture or no-TFN).
• Cessation reasons when an employee leaves.

The practical consequence for software selection is pay category mapping. Each earning, allowance and deduction in your payroll file must map to the right STP category. A product can be fully Phase 2 enabled and still send wrong data if, for example, a laundry allowance has been set up as ordinary hours.

Payday Super and STP from 1 July 2026

Payday Super added two key items to what software must calculate and report: qualifying earnings (QE) for each pay, and the super guarantee liability on it. Qualifying earnings include ordinary time earnings plus items such as salary-sacrificed amounts and certain commissions. The ATO has said employers must report both through STP, and that some software may need configuration or pay codes re-mapped before it can report QE correctly.

Check with your provider:

1. Is the product updated to report QE and super liability?
2. Which pay categories count towards QE in its default settings, and do they match your pay items?
3. If you started reporting QE part-way through 2026–27, what did the provider and the ATO advise about the earlier pays?

See the Payday Super guide for the payment side.

Choosing software: STP questions to ask

Micro employers with one to four employees can also use low-cost STP solutions; the ATO has published information on these. They suit very simple pay, but Payday Super still requires super to be paid each pay day, so check how the product handles that.

Illustrative check: a pay category mapping review

A retail employer migrating to new software exports a pay run for 12 employees and checks each line:

Two items need a decision. The employer asks its BAS agent and the software's support team, documents the answers and fixes the mapping before the first live pay. Mapping questions like these are why it pays to test a real pay run in a trial.

Common STP mistakes

• Reporting after pay day without a valid reason.
• Forgetting the finalisation declaration, or finalising before all corrections are made.
• Two payroll systems in one year sending overlapping year-to-date figures for the same employee after a switch. See switching payroll software mid-year.
• Allowances set up as gross, so employees' income statements and tax returns are wrong.
• Wrong employment basis for casuals, which affects data used by other agencies.

Frequently asked questions

Can I lodge STP reports late if pay day is a public holiday?

The ATO has rules for some situations, including some deferrals and concessions. If you cannot report on or before pay day, check the ATO's STP guidance or ask a registered BAS or tax agent rather than assuming.

Do I need STP for a closely held payee?

Yes, closely held payees (such as family members in a family business) are reported through STP, with some concessional reporting options. Check the ATO's current rules.

Does STP replace payslips?

No. STP reports to the ATO. You still must give employees a payslip within one working day of pay day. See payslip and record rules.

Is STP data enough for payroll tax returns?

No. Payroll tax is a separate state and territory tax with its own returns and definitions of taxable wages.

Sources

• Australian Taxation Office — Single Touch Payroll Phase 2 employer reporting guidelines and Payday Super reporting
• business.gov.au — Single Touch Payroll overview for small business
• Federal Register of Legislation — Taxation Administration Act 1953, Schedule 1, Division 389 (STP reporting)
• Fair Work Ombudsman — payslip requirements, which STP does not replace