Single Touch Payroll (STP): Complete Employer Guide

What Is Single Touch Payroll?

Single Touch Payroll (STP) is an ATO reporting requirement where employers report payroll information - including salaries, wages, PAYG withholding, and superannuation - directly to the ATO each time they process a pay run.

The system was introduced to streamline payroll reporting, reduce employer red tape (by eliminating payment summaries), and give the ATO real-time visibility of employer payroll obligations.

STP is mandatory for all employers, regardless of size. If you have even one employee, you must report through STP.

STP Phase 2: What Changed

STP Phase 2 expanded the data employers must report. The key changes include:

Disaggregation of Gross Payments

Instead of reporting a single gross amount, employers must break down payments into specific categories:

• Gross salary and wages
• Paid leave (each type separately)
• Allowances (by type)
• Overtime
• Bonuses and commissions
• Directors' fees
• Lump sum payments

Income Types

Each payment must be classified by income type:

• SAW - Salary and wages
• CHP - Closely held payees (family members, directors of private companies)
• IAA - Inbound assignees to Australia
• WHM - Working holiday makers
• SWP - Seasonal worker programme
• VOL - Voluntary agreements
• LAB - Labour hire
• OSP - Other specified payments

Most small businesses will use SAW for the majority of their employees.

Country Codes

For employees who are not Australian residents for tax purposes, you must report their country code.

Tax Treatment Codes

A six-character code that captures the employee's tax treatment: residency status, tax-free threshold, HELP/HECS status, and other factors. Your payroll software generates this automatically based on the employee's TFN declaration.

Setting Up STP

Step 1: Choose STP-Enabled Payroll Software

You need payroll software that is STP Phase 2 compliant. Options include:

• Xero Payroll - Built into Xero's accounting platform
• MYOB - Payroll included in business plans
• QuickBooks Payroll - Integrated with QuickBooks
• KeyPay - Standalone payroll with strong STP support
• Reckon - Another Australian payroll option

For very small employers (1-4 employees), the ATO offers free or low-cost simple reporting solutions.

Step 2: Connect to the ATO

Your payroll software needs to be connected to the ATO's STP reporting service. This is usually a one-time setup within the software. You will need:

• Your ABN
• A software ID (provided by your payroll software)
• ATO authentication (through myGovID and RAM, or through the software's own authentication)

Step 3: Enter Employee Details

Ensure every employee record includes:

• Full legal name
• Date of birth
• TFN (or a reason for not having one)
• Residential address
• Employment type (full-time, part-time, casual)
• Start date
• Tax treatment details from their TFN declaration
• Superannuation fund details

Step 4: Process Your First STP Pay Run

When you run payroll, your software calculates the gross pay, PAYG withholding, super, and other details. When you finalise the pay run, the software transmits an STP report to the ATO.

Ongoing STP Obligations

Each Pay Run

Every time you process payroll, an STP report is submitted to the ATO. This happens automatically through your payroll software. You should verify that each submission is successful - most software shows a confirmation status.

Corrections

If you make an error in a pay run, correct it in a subsequent pay run. The updated year-to-date figures in the next STP submission will override the previous data.

Employee Changes

When an employee starts or leaves:

• New employee - Enter their details and start reporting from their first pay run
• Departing employee - Process their final pay, and lodge an STP finalisation event for that employee

Year-End Finalisation

By 14 July each year, you must lodge an STP finalisation event. This confirms that the year-to-date figures for each employee are final and correct. Once finalised, the data appears in your employees' myGov accounts as their income statement (replacing the old payment summary).

Employees can then use this information to lodge their tax returns, or the ATO may pre-fill their returns automatically.

STP for Closely Held Payees

Closely held payees - directors of private companies, family members, and beneficiaries of family trusts - have slightly different reporting options:

• Report each pay run (same as regular employees) - This is the standard approach
• Report quarterly - You can choose to report quarterly instead of each pay run, with STP submissions due by the BAS due date

This concession recognises that closely held payees often have irregular or variable payment patterns.

Common STP Issues and Solutions

Submission failures - Check your internet connection, software authentication, and that your ABN and software ID are correct. Most failures are connectivity-related.

Incorrect year-to-date figures - If STP figures do not match your payroll records, run a reconciliation report in your payroll software and identify the discrepancy. Submit a correction in the next pay run.

Employees cannot see their income statement - Ensure you have finalised the STP data. Income statements only appear in myGov after finalisation. Also verify the employee's details (name, TFN, date of birth) match what the ATO has on record.

Late finalisation - If you miss the 14 July deadline, finalise as soon as possible. The ATO may impose penalties for late finalisation, but they generally take a supportive approach for first-time or minor delays.

Benefits of STP

Despite the initial setup effort, STP provides real benefits:

• No more payment summaries - Saves time at year-end
• Reduced data entry - The ATO receives payroll data automatically
• Pre-filled employee tax returns - Employees benefit from pre-filled returns
• Better cash flow visibility - The ATO tracks your PAYG withholding obligations in real-time, which can reduce audit risk
• Simplified reporting - One report each pay run replaces multiple annual reports

Practical STP Tips

1. Invest in good payroll software - It makes STP compliance automatic and painless
2. Check submission status after each pay run - Do not assume it went through
3. Reconcile quarterly - Match your STP reports to your BAS figures
4. Finalise by 14 July - Set a calendar reminder
5. Keep employee details current - Address changes, TFN updates, and super fund changes should be updated promptly
6. Use SortBooks for expense management - While SortBooks handles your bank transaction categorisation, your payroll software handles STP. Together, they keep your entire financial picture accurate.

STP is now a routine part of running a business in Australia. With the right software and processes, compliance is straightforward.