Single Touch Payroll (STP) Phase 2: A Practical Guide for Australian Employers

Single Touch Payroll (STP) has fundamentally modernized how Australian employers report payroll information to government agencies. While Phase 1 focused primarily on total gross payments, tax withheld, and superannuation liabilities, STP Phase 2 expands reporting granularity to multiple agencies, including Services Australia (Centrelink) and the ATO.

At Tax Bridge Advisory Pty Ltd, our bookkeeping and payroll specialists help Australian business owners configure payroll software (Xero, MYOB, QuickBooks) to remain 100% compliant with STP Phase 2 and evolving Superannuation Guarantee (SG) rules.

What Changed in STP Phase 2?

Under STP Phase 2, employers are no longer permitted to report employee earnings as a single lump-sum “Gross Pay” amount. Instead, wages must be disaggregated into specific pay item categories:

1. Gross Wages: Standard base hourly pay, casual rates, and regular salary components.
2. Paid Leave: Detailed categorization of annual leave, sick/carer’s leave, long service leave, compassionate leave, and ancillary leave.
3. Allowances: Distinct reporting for travel, car, uniform, laundry, meals, and qualification allowances.
4. Overtime: All overtime hours, penalty rates, and call-out allowances must be split from ordinary time earnings.
5. Bonuses & Commissions: Performance bonuses, retention payments, and sales incentives.
6. Directors’ Fees: Specific isolation of payments made to corporate directors.
7. Salary Sacrifice: Type S (superannuation salary sacrifice) and Type O (other salary sacrifice for benefits) must be tracked individually.

Why Did the ATO Introduce Phase 2?

The primary objectives of STP Phase 2 are:

• Zero End-of-Year Payment Summaries: Employees see real-time, income-tax-ready information in their myGov accounts without waiting for manual group certificates.
• Automated Centrelink Cross-Matching: Removes the need for employers to manually complete Employment Separation Certificates or manual income confirmation forms when workers claim social support payments.
• Child Support Garnishee Reporting: Enables automated reporting of child support deductions directly through the payroll event.

Superannuation Guarantee (SG) Rate Trajectory

Employers must also ensure that payroll calculations align with the legislated annual step-ups in the Superannuation Guarantee:

• 1 July 2023 – 30 June 2024: 11.0%
• 1 July 2024 – 30 June 2025: 11.5%
• 1 July 2025 onwards: 12.0%

Critical Reminder on Super Payment Deadlines: Superannuation contributions must be received by the employee’s complying super fund on or before the 28th day following the end of each quarter:

• Q1 (Jul–Sep): Due 28 October
• Q2 (Oct–Dec): Due 28 January
• Q3 (Jan–Mar): Due 28 April
• Q4 (Apr–Jun): Due 28 July

Contributions paid even one day late are not tax-deductible and require the employer to lodge a Superannuation Guarantee Charge (SGC) Statement with statutory interest and administrative fees.

Best Practices for Compliant Payroll Management

1. Conduct a Pay Item Audit in Xero/MYOB: Review every pay item in your payroll settings to ensure correct STP Phase 2 pay category mapping.
2. Review Ordinary Time Earnings (OTE): Verify whether specific allowances or bonuses are subject to superannuation calculations.
3. Automate Super Clearing House Submissions: Process super contributions at least 7 business days prior to statutory cut-offs to accommodate clearing house processing times.

Managing staff payroll, awards, and super calculations can be time-consuming and fraught with compliance pitfalls. Learn how our Payroll Services streamline your pay runs, or contact our team for a complimentary payroll audit.