STP Phase 2 Explained — Requirements for Small Business

What is Single Touch Payroll Phase 2?

Single Touch Payroll (STP) Phase 2 is the ATO's expanded payroll reporting system, mandatory for all Australian employers. Under STP Phase 2, employers report detailed payroll information — including income type, salary sacrifice, and closely held payee data — to the ATO electronically on or before every pay day.

STP Phase 1 launched in 2019 (small employers 2019–2020). Phase 2 expanded the reporting requirements and became mandatory for most employers from 1 January 2022, with some deferral extensions.

What's new in Phase 2?

Income type disaggregation

Phase 1 reported a single gross income figure. Phase 2 requires income to be reported by type:

• SAW — Salary and wages (most employees)
• CHP — Closely held payees (directors, family members of private companies)
• WHM — Working holiday makers
• FEI — Foreign employment income
• IAA — Inbound assignees from a country with a DTA
• SWP — Seasonal worker programme
• VOL — Voluntary agreement
• LAB — Labour hire

For most small businesses, the only income type is SAW.

Salary sacrifice reporting

Phase 2 requires salary sacrifice to be reported separately:

• Salary sacrifice — super (SS) — amounts the employee sacrifices into super
• RESC (Reportable Employer Super Contributions) — above-minimum employer super contributions that the employee can influence

Disaggregated gross income

Gross income must now be disaggregated into separate amounts — for example, ordinary earnings, allowances, paid leave, and bonuses must each be reported under specific ATO-defined codes.

Termination payments

Employment Termination Payments (ETPs), unused leave on termination, and redundancy payments must be reported under specific codes that flow through to the employee's tax return pre-fill.

What are the employer obligations?

1. Lodge a STP Phase 2 report on or before each pay day — this is the fundamental requirement
2. Use STP-enabled payroll software — manual reporting is not practical; the ATO requires electronic lodgement via a certified software provider
3. Finalise by 14 July — the STP finalisation event replaces payment summaries. Employees need this to complete their tax returns.
4. Correct errors promptly — if an error is found in a previous submission, lodge an amended event

Common STP Phase 2 mistakes

• Not disaggregating allowances — tool allowances, meal allowances, and travel allowances must each be coded separately under the ATO's allowance type list
• Incorrect income type assignment — e.g., coding a working holiday maker as SAW
• Not including RESC — many employers forget that additional employer super contributions (above the SG minimum) need to be flagged
• YTD figure errors — STP is cumulative; if a figure in a previous pay run was wrong, all subsequent reports will carry the error forward until an amendment is lodged

Does STP Phase 2 replace payment summaries?

Yes. Since STP Phase 1, employers who report through STP are no longer required to issue payment summaries (group certificates) to employees. Instead, the employee's year-to-date income information is available through myGov / ATO Online, pre-filled into their tax return.

The employer still needs to lodge the STP finalisation event by 14 July so the ATO knows the year is complete.

What if you're not STP-compliant?

The ATO can issue penalties for non-compliance, including failure-to-lodge penalties. However, the ATO has historically taken a reasonable approach to small employers who are genuinely trying to comply but encountered technical difficulties.

If you're not yet STP Phase 2 compliant, contact the ATO and your software provider immediately.

How ERNVO handles STP Phase 2

ERNVO lodges STP Phase 2 reports automatically when you finalise each pay run. All income type disaggregation, allowance coding, and RESC calculation is handled by the platform — you don't enter any ATO-specific codes manually.

Learn about ERNVO payroll →