Updated: April 2026

If you employ staff in Australia, you are likely already familiar with Single Touch Payroll (STP)—the system that sends your payroll data to the ATO every time you pay your employees. However, the ATO has rolled out an expanded reporting system known as STP Phase 2.

The goal of Phase 2 is to reduce the reporting burden on employers who previously had to send data to multiple government agencies (like Services Australia and Centrelink) by capturing more granular data in a single reporting event.

1. What is changing under STP Phase 2?

The main change is that the ATO requires more detail about how your employees are being paid. Under Phase 1, you reported a single bundled "Gross Pay" amount. Under Phase 2, this gross amount must be broken down (disaggregated) into specific categories:

• Allowances: All allowances (e.g., travel, meals, tools) must be reported separately, not bundled into gross pay.
• Paid Leave: Annual leave, sick leave, and long service leave must be categorized so the ATO can identify the specific type of leave being taken.
• Overtime: Overtime pay must be separated from ordinary earnings.
• Directors' Fees: If you are a company director taking a fee, it must be reported distinctly from regular wages.

2. New Onboarding Information

STP Phase 2 also simplifies the onboarding process for new employees. You now report the following information directly through your payroll software, meaning less manual paperwork:

• TFN Declarations: You no longer need to send a physical Tax File Number declaration to the ATO. The details are sent electronically in your STP report.
• Employment Basis: You must declare whether the employee is full-time, part-time, or casual.
• Cessation Reason: If an employee leaves your business, you must report the reason (e.g., voluntary resignation, redundancy, or dismissal). This eliminates the need to issue a separation certificate for Centrelink.

3. What is NOT changing?

The good news is that the core mechanism of how you lodge STP remains the same. You still lodge it on or before the day you pay your employees. Your PAYG withholding and superannuation calculations do not change, and the due dates for your payments to the ATO and your super clearing houses remain identical.

How to stay compliant

To comply with STP Phase 2, your payroll software must be configured with precise mapping. This means reviewing your pay items and ensuring every allowance, leave type, and deduction is mapped to the correct ATO reporting category.

Next Steps: Whether you process payroll through small business platforms like Xero or MYOB, or utilize enterprise-grade systems like Microsoft Dynamics 365 Finance & Operations, maintaining compliant pay categories is critical. If you need help migrating to Phase 2 or want to ensure your pay items are mapped correctly to avoid ATO penalties, contact the payroll compliance experts at Loyal Bright Accountants today.