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Single Touch Payroll Phase 2 (STP2)

Published on May 29, 2024

In 2022, the Australian Tax Office (ATO) rolled out Phase 2 of Single Touch Payroll (STP2) to include new reporting requirements designed to reduce the reporting burden of employers who have to report to multiple government agencies. These include further details about gross income, employment and taxation conditions, visibility on income types, country codes, child support garnishees and deductions.

QuickBooks has implemented STP2 in February 2022, which means that the common pay, leave, and deduction categories in the system have been updated with payment classification information so users don’t have to manually update it. You will also be considered to be reporting on time and you won’t need to apply for more time.

Note: To learn more about QuickBooks and STP2 you can check our STP2 learn & support content and our STP 2 readiness checklist .

How does STP2 work?

STP2 has expanded the reporting requirements of employers, with non-compliance resulting in potential penalties.

While STP Phase 1 aimed to standardise reporting and helped to streamline payroll reporting for employers in Australia, STP2 aims to expand on the granularity of reporting requirements and provide more visibility around payroll.

Benefits of STP2

Employers

As some reporting requirements are now consolidated, the ATO has removed Lump Sum E payment letters and forwarded Tax File Number (TFN) declarations. Additionally, payroll information that employers submit to the ATO will be shared in real-time to streamline Services Australia requests. For concessional reporting, this information is communicated via income types.

Employees

With improved income visibility, more information will be pre-populated on their tax returns. The streamlining between the ATO and Services Australia will also help streamline claims and enhance the Family Tax Benefit process.

Main Changes in STP2

There are several key changes being introduced in STP2.

TFN Declarations

You will need to include information collected from TFN declarations in your employees STP reporting. These declarations no longer need to be forwarded to the ATO, but employers will need to collate the TFN, employment type, and whether an employee has HECS-HELP debt.

Lump-Sum E Payments

In previous years, employers needed to provide employees with a Lump Sum E letter if they were making a payment owed from a previous year. This is no longer required in STP2. The employer needs to include this information in STP reporting, and the details will appear in the income statement for the relevant employee.

Child Support

It is optional, but businesses can include information about child support deductions or garnishes in the STP report. This helps to streamline the Child Support Registrar.

Employee Separation Certificates

You no longer need to produce employee separation certifications. The reason for an employee's departure is recorded via STP reporting.

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Additional reporting requirements

Employment type reporting was previously optional. With STP2, employers must declare whether an employee is a volunteer, labour-hire, casual, part-time, or full-time.
If employers employ Australian residents to work overseas, they will need to report details regarding the host country.
With STP2, employers must report each component of income rather than the gross sum; itemising overtime, commissions, salary sacrifice, bonuses, paid leave, and allowances.

As an employer, you must familiarise yourself with the changes in STP2, as failure to meet your obligations can result in penalties from the ATO. Further, if you provide information that is incorrect or misleading, this can also result in penalties.

What isn’t changing with STP2

You don't need to change your method used for STP reporting but you will need to provide further information in the reporting you submit to the ATO.

Some of the items that are not changing with STP2 are:

The way taxes are lodged
Due dates
Type of payments needed
Tax and super obligations
End-of-year finalisation requirements

How STP2 changes can impact your business

With STP2 now mandatory, you will need to make changes to how your company manages payroll. These changes will depend on the size, structure and type of employees your company has, as well as the processes and payroll systems that you already have in place.

STP2 will ensure that your payroll reporting process is more streamlined.Your employees will also see some benefits since their payroll information is directly linked to Services Australia agencies such as Centrelink and Child Support, which helps to reduce the amount of documentation required to report and make claims. STP2 also ensures the accuracy of payments due.

How QuickBooks Can Help You Save Time

QuickBooks Payroll can help you save time by automating many of the tasks associated with Single Touch Payroll (STP) reporting. Here are a few ways QuickBooks can help:

Streamlined STP reporting: Automatic generation and submission of STP2 reports to the ATO.
Fast and accurate processing: Seamless integration with accounting software ensures no more manual data entry and data accuracy.
Time-saving features: Automation of pay runs, direct deposit, and electronic invoicing
Easier tax time: Save time and paperwork at the end of the financial year
ATO approved: Send complete and ATO compliance reports with every pay run

By using QuickBooks Payroll, you can save time and stay compliant with STP reporting requirements.

How QuickBooks Payroll Can Help You Stay STP2 Compliant

QuickBooks Payroll powered by Employment Hero, can help you navigate Phase 2 of the Single Touch Payroll rollout. From payroll to accounting, rostering, invoicing, and more, QuickBooks is not only STP-compatible, but also ATO-approved and helps to automate (and in turn simplify) business processes.

FAQs

When Did The STP2 Changes Take Effect?

How Can I Prepare for STP2?

What changes can I expect in STP2?

Providing a termination reason will now be mandatory
You can record child support garnishes as a paid event, so you do not need to report this separately
TFN information will be incorporated in the STP reporting process, which eliminates the need for separate submissions to the ATO
There is no longer a need for Lump Sum E letters
You will need to classify payments to detail the type of income, payment, and country code if required
Paid leave will be itemised using leave type codes, and allowance items will also have specific codes
You will be able to submit negative year-to-date reporting

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