Single Touch Payroll Phase 2 (STP2) Explained

Single Touch Payroll Phase 2 (STP2) is an update to the Australian Taxation Office’s (ATO) payroll reporting system. It requires employers to report more detailed payroll and employee information to the ATO each time they run payroll through STP-enabled software.

For many small businesses, STP2 is now part of everyday payroll compliance. Checking your payroll information is accurate and up to date can help you avoid reporting errors, reduce manual admin, and stay aligned with ATO requirements—including newer changes like payday super reforms.

Using tools like QuickBooks Payroll powered by Employment Hero can help you manage payroll reporting more efficiently while keeping your payroll, cash flow, and expense records organised. 

What is Single Touch Payroll Phase 2?

Single Touch Payroll Phase 2 is the second stage of the ATO’s Single Touch Payroll reporting system. It builds on the original STP framework by requiring you to send more detailed payroll and employee information to the ATO through STP-enabled software every time you pay employees.

The goal is to simplify payroll reporting across government agencies while improving reporting accuracy. Instead of separately reporting some employee and tax information, much of it can now be included as part of your regular payroll reporting process.

What has changed?

• Expanded payroll reporting: You now report more detailed payroll information, including allowances, deductions, paid leave, and termination details.
• More detailed employee income categories: Employee income needs to be classified into specific categories to help the ATO better understand how employees are paid and taxed.
• Additional employment information: You may also need to report employment basis, tax treatment, and cessation reasons.

You should also stay across related payroll compliance changes, including payday super changes and broader Single Touch Payroll requirements.

How does STP2 work?

STP2 works by sending payroll and employee information directly to the ATO each pay cycle through STP-enabled accounting software. Instead of preparing separate reports for multiple government agencies, you can include expanded information as part of your normal payroll process.

Compared to the original STP system, STP2 includes more detailed reporting categories and classifications.

Which details need to be reported?

• Employee income types: You need to classify employee income using ATO-defined categories, such as salary and wages, working holiday maker income, or closely held payees.
• Allowances and deductions: Certain allowances and payroll deductions need to be reported separately.
• Paid leave categories: Leave payments like annual leave, personal leave, and long service leave need to be itemised using leave codes.
• Salary sacrifice amounts: Salary sacrifice arrangements, including super contributions, need to be reported under the correct categories.
• Employment conditions and status: You may need to report information such as employment basis and work arrangements.
• Tax treatment information: STP2 includes more detailed tax treatment reporting to support accurate PAYG withholding.
• Termination and cessation reasons: You need to include standardised termination reason codes when employees leave.
• Child support garnishees and deductions: Employers can also include child support deductions and garnishees in STP2 reporting.

Because STP2 adds more detail to payroll reporting, having the right payroll software in place can make things easier. Tools like Intuit QuickBooks Payroll can help you automate reporting, reduce manual admin, and stay on top of changing tax and payroll deductions requirements.

How does STP2 benefit Australian businesses?

Single Touch Payroll Phase 2 is designed to make payroll reporting more connected and consistent by allowing you to send payroll information directly to the ATO through STP-enabled software such as Intuit QuickBooks. While the reporting requirements are more detailed, STP2 reduces the need for some separate forms and reporting processes.

• Employer benefit: Some information that previously required separate forms or reporting can now be easily submitted through STP-enabled payroll software. Payroll information reported to the ATO may also be shared with Services Australia to streamline income-related reporting and claims.
• Employee benefit: With more payroll information reported through STP2, employees may see more information automatically pre-filled at tax time. Sharing payroll data between the ATO and Services Australia can also help make their income reporting and payments like Family Tax Benefit easier to manage.

What employers need to do to prepare for STP Phase 2

Preparing for STP2 starts with reviewing your payroll settings and employee information to make sure your reporting categories are accurate and up to date.

1. Review payroll categories

You should review your pay, leave, and deduction categories to make sure they align with current STP2 reporting requirements. This means checking allowances, overtime, bonuses, commissions, and leave types are classified correctly within your payroll software.

2. Update employee information

Review your employee records to make sure important details are complete and accurate before reporting through STP2. This may include tax file declaration information, employment basis, tax treatment details, and termination information where relevant.

If you’re just getting started, you can also learn how to set up payroll in Australia.

3. Check salary sacrifice settings 

You should check salary sacrifice arrangements to make sure they’re reported under the correct STP2 classifications. This may include separately identifying salary sacrifice amounts related to super and other employee benefits.

4. Lodge an update 

Before transitioning to STP2 reporting, it’s a good idea to validate your payroll data and submit an update event if needed. Reviewing your payroll information beforehand can help reduce reporting errors and support ongoing compliance.

What are the main changes to Single Touch Payroll Phase 2?

STP2 changes the way you report payroll information to the ATO by adding more detailed reporting requirements into your regular payroll process. While that means there’s more information to classify correctly, it also reduces the need for some separate forms and manual reporting tasks.

• TFN Declarations: You generally no longer need to separately send TFN declaration information to the ATO, as key details are now included in your STP reporting. This can include an employee’s TFN, employment type, tax treatment, and whether they have a HECS-HELP debt.
• Lump-Sum E Payments: In the past, employers needed to provide Lump Sum E letters for certain back payments owed from previous financial years. Under STP2, this information is included in your STP reporting and appears in the employee’s income statement instead.
• Child support: You can choose to include child support deductions and garnishees in your STP reporting. This can help simplify reporting processes with Services Australia.
• Employee Separation Certificates: You generally no longer need to provide employee separation certificates, as employee termination details and cessation reasons can now be reported through STP2.
• Paid Leave: Paid leave now needs to be reported using specific leave categories. This includes leave types like annual leave, personal leave, and long service leave.
• Bonuses and commissions: There are now specific payment categories to separately report bonuses and commissions.

How Intuit QuickBooks can support STP2

Intuit QuickBooks Payroll can help take some of the stress out of STP2 reporting by automating payroll tasks and sending reports directly to the ATO. Because payroll is built into Intuit QuickBooks’ accounting software you can manage your payroll and expenses together in one place—with less manual admin.

STP2 frequently asked questions