Single Touch Payroll, commonly called STP, is now a core part of running payroll in Australia. If you employ staff, pay directors’ fees or make other reportable payments, you need to understand what information must be reported to the ATO, when reports are due and how STP connects with your broader payroll, BAS and superannuation obligations.
For many small businesses, STP is largely handled through payroll software. That does not mean it can be left on autopilot. Incorrect employee set-up, misclassified allowances, late reports or unfinalised year-end information can create problems for both the business and its workers.
What Single Touch Payroll is and why it matters
Single Touch Payroll is the system through which employers report payroll information to the ATO electronically. In general terms, an STP report is sent from an STP-enabled payroll solution when employees are paid.
The information reported includes year-to-date payroll figures for relevant workers, including:
- Salary and wages
- PAYG withholding
- Superannuation information
- Allowances
- Overtime
- Bonuses and commissions
- Paid leave
- Salary sacrifice arrangements
- Certain termination payments and lump sums
- Directors’ fees and other reportable payment types, where applicable
The purpose is to reduce duplication in employer reporting and provide more timely information to government agencies and employees.
For employees, STP means payroll information is generally available through their income statement in ATO online services. Once an employer has completed the required year-end finalisation process, the income statement becomes “tax ready” and can be used to prepare an income tax return.
For employers, STP may reduce the need to prepare traditional payment summaries for payments that have been correctly reported and finalised through STP. However, it does not remove the need to maintain sound payroll records, meet PAYG withholding obligations, pay superannuation correctly or lodge activity statements.
Who needs to report through STP?
STP reporting applies broadly to employers that make reportable payments to workers. This can include businesses operating through a company, trust, partnership or as a sole trader with employees.
The rules are not limited to full-time employees. Depending on the nature of the arrangement and payment, reporting may also be relevant for:
- Part-time and casual employees
- Company directors and office holders
- Closely held payees, such as family members or directors of a family business
- Labour-hire workers
- Workers paid under voluntary withholding agreements
- Certain contractors and other workers where PAYG withholding applies
- Employees who cease during the financial year
A sole trader with no employees will not usually have an STP reporting obligation merely because they draw money from their business. A sole trader’s own drawings are not wages paid to an employee. The position can be different where the business employs staff or makes payments that attract PAYG withholding.
There are limited exemptions, deferrals and concessional reporting arrangements available in particular circumstances. For example, some businesses with closely held payees may be able to access reporting concessions. These arrangements are specific and should not be assumed to apply simply because a business is small, family-owned or uses a manual payroll process.
The key point is that business structure and worker labels do not determine the outcome on their own. A person described as a contractor may still create withholding, superannuation or reporting obligations depending on the actual arrangement.
How STP reporting works each payday
An STP report is generally lodged on or before the day employees are paid. Most payroll systems prepare the report as part of the pay run process, then prompt the employer or payroll manager to submit a declaration.
The report generally provides year-to-date figures rather than only the amounts paid in that specific pay run. This is important because a later, correct report can update previously reported year-to-date information.
A typical STP pay cycle may look like this:
Check employee information
Confirm names, tax file number details, date of birth, address, employment basis and other payroll records are accurate.
Process the pay run
Enter ordinary hours, overtime, leave, allowances, deductions, reimbursements, commissions and any other relevant payroll items.
Review PAYG withholding and superannuation calculations
Payroll software can calculate amounts, but the business remains responsible for ensuring the underlying set-up is correct.
Submit the STP report
Send the payroll information to the ATO through the STP-enabled system on or before payday, unless an approved concession or deferral applies.
Pay employees and meet other obligations
STP reporting is separate from paying employees, remitting PAYG withholding and making superannuation contributions. Lodging an STP report does not itself pay tax or super.
Keep records and investigate errors promptly
Retain payroll records and ensure amounts reported through STP agree with the business’s payroll records, bank payments and BAS reporting.
A useful way to think about STP is that it reports what the business says it has paid or accrued through payroll. It is not a substitute for the underlying payroll compliance work.
What changed with STP Phase 2
STP Phase 2 expanded the level of detail reported through payroll. The aim was not to create a completely different payroll system, but to make reported information more specific and more useful for tax, social security and child support administration.
Under Phase 2, employers may need to provide more detailed information about the worker and the payment. This can include employment conditions, tax treatment, income type and the reason an employee ceased work.
It also requires many payments that may once have been grouped into a single gross wages figure to be reported separately. Depending on the payment and payroll software configuration, this may include:
- Gross earnings
- Paid leave
- Overtime
- Bonuses and commissions
- Allowances by category
- Directors’ fees
- Salary sacrifice to superannuation
- Salary sacrifice for other employee benefits
- Employment termination payments
- Lump sum payments
This additional detail makes payroll coding more important. An allowance should not automatically be treated in the same way as a reimbursement. A payment for overtime should not necessarily be entered as ordinary time earnings. Likewise, salary sacrifice needs to be recorded correctly rather than simply reducing an employee’s take-home pay.
The practical impact for a small business is clear. Before relying on software defaults, review the chart of payroll accounts and pay item settings. If a business has unusual allowances, employee benefits, overseas workers, working holiday makers, directors, labour-hire arrangements or termination payments, the payroll set-up deserves particular attention.
STP, BAS and superannuation: related, but not the same
STP can make payroll reporting more streamlined, but it does not combine every employer obligation into one task.
PAYG withholding amounts still need to be reported and paid through the business’s activity statement process. The ATO may use STP information to pre-fill certain PAYG withholding labels for eligible businesses, but pre-filled amounts should always be checked against the business’s own records before the BAS is lodged.
If a discrepancy appears between STP reports and the BAS, it should be investigated. Possible causes include:
- A pay run was processed but the STP report was not submitted
- A report was lodged with the wrong payment date
- A payroll adjustment was not reflected in the BAS
- A payment outside ordinary payroll was included or omitted incorrectly
- A correction was made through payroll but not reviewed for BAS purposes
- The business has withholding obligations that are not reported through STP
Superannuation is also closely connected with STP, but reporting super information through STP does not prove that contributions have been paid to the employee’s fund. Businesses must still make superannuation contributions correctly and on time, keep appropriate records and ensure payroll settings reflect the current legal requirements.
This distinction matters because an employee may see superannuation information in their income statement, while the actual payment and allocation process involves separate steps between the employer, clearing house or fund.
Correcting mistakes and finalising at year end
Payroll mistakes happen. The important issue is how quickly and accurately they are corrected.
Where an STP report contains incorrect year-to-date amounts or employee details, the business can generally correct the information through a later pay event or an update event. An update event is designed for changes that need to be reported when employees are not being paid.
Errors should not be ignored simply because a later report appears to have overwritten earlier figures. The business should check whether the correction affects:
- The employee’s year-to-date income and tax withheld
- Superannuation information
- The employee’s income statement
- BAS labels and PAYG withholding amounts
- Leave balances or payroll records
- Finalisation status at the end of the financial year
The ATO’s guidance expects employers to correct STP errors within 14 days of detecting them. If the employer’s regular pay cycle is longer than 14 days, the correction is generally due by the next regular pay event date.
At the end of the financial year, employers need to make an STP finalisation declaration for each relevant employee. This tells the ATO that the employer’s reporting for that employee is complete for the year.
For most employers, the standard finalisation due date is 14 July following the end of the financial year. Different timing can apply to closely held payees, depending on the employer’s circumstances and workforce composition. This is one area where family businesses should obtain advice rather than assume that the standard deadline applies.
Once finalised, an employee’s income statement is generally marked as tax ready. If an error is discovered after finalisation, it should still be corrected as soon as possible through an update event. The employer should also consider notifying the employee, particularly where the employee may already have lodged their tax return.
A practical example
Imagine a small construction business that pays a site supervisor ordinary wages, overtime and a travel-related allowance. The business initially codes all three payments as ordinary wages in its payroll software.
The employee’s total pay may be correct, but the STP information is not properly categorised. Before year-end, the bookkeeper reviews the payroll settings, identifies the issue and corrects the year-to-date reporting through an update event. The business also checks whether its BAS amounts remain accurate and ensures the employee’s income statement is finalised only after the correction is complete.
The lesson is that STP compliance is not only about pressing “submit”. It depends on accurate payroll classifications from the beginning.
Common STP issues for small businesses to avoid
Small businesses often encounter STP problems when payroll processes are informal or spread across several people. A few simple controls can reduce the risk.
Common issues include:
- Running payroll but forgetting to submit the STP report
- Lodging the report after payday without considering whether a concession applies
- Using outdated employee details
- Treating all allowances, reimbursements and bonuses as ordinary wages
- Failing to distinguish employees from contractors for withholding and superannuation purposes
- Recording salary sacrifice arrangements incorrectly
- Assuming STP lodgment means PAYG withholding or superannuation has been paid
- Relying on BAS pre-fill amounts without reconciling them to payroll
- Delaying corrections until EOFY
- Forgetting to finalise employee income statements
- Finalising too early, then processing additional payments without updating the record
A sensible payroll routine should include a review before each pay run, reconciliation after each pay period and a more detailed check before BAS lodgment and EOFY finalisation.
Businesses should also ensure that the person responsible for payroll understands their role. Outsourcing bookkeeping or payroll administration can be helpful, but the business owner or director should still have visibility over key payroll obligations and deadlines.
Keeping payroll reporting under control
Single Touch Payroll has made payroll reporting more immediate, more transparent and more connected to employees’ tax records. For business owners, the best approach is to treat STP as part of a complete payroll compliance process, rather than a separate administrative task.
Accurate worker classifications, well-configured payroll software, prompt reporting, regular reconciliations and timely year-end finalisation can help reduce errors and make tax time smoother for both the business and its employees.
This article is general information only and is not personal financial or tax advice. STP obligations can vary depending on your business structure, workers, payment types and payroll arrangements. Speak with a registered tax agent or accountant, such as Ample Finance, for advice tailored to your circumstances.