Understanding STP Reporting, Phase 2 Requirements & How to Stay ATO-Compliant with the Right Payroll Software

Payroll compliance in Australia has evolved significantly over the last few years. With the introduction of Single Touch Payroll (STP) and now STP Phase 2, businesses are required to report more detailed payroll information to the Australian Taxation Office (ATO) every pay cycle.

For many business owners, this can feel overwhelming.

In this guide, we explain:

• What STP reporting is
• What changed under STP Phase 2
• Common compliance risks

And how choosing the right payroll software helps you stay fully ATO-compliant

Single Touch Payroll (STP) is an ATO initiative that requires employers to report employee payroll information directly to the ATO each time they run payroll.

This includes:

• Gross wages
• PAYG withholding
• Superannuation liabilities
• Employee details

Instead of submitting payment summaries at year-end, payroll data is now reported continuously throughout the year.

STP Phase 2 is an expansion of the original STP system, designed to give the ATO greater visibility into payroll components and employee entitlements.

It introduces more detailed reporting categories, including:

Key Changes in STP Phase 2

• Income types (salary & wages, closely held payees, working holiday makers, etc.)
• Income stream classifications
• Country codes for overseas employees
• Detailed allowance categories
• Overtime reporting
• Paid leave types (annual, sick, parental, etc.)
• Separation reason codes
• Superannuation liability reporting per employee

This means businesses must now structure their payroll data more accurately than ever before.

Failure to comply can result in:

• Incorrect ATO records
• Superannuation mismatches
• PAYG reporting errors
• ATO audits or penalties
• Employee tax return issues
• Back-dated corrections and administrative burden

STP Phase 2 is not just a technical upgrade, it is a compliance obligation.

Many SMEs struggle with:

• Using outdated or non-compliant payroll software
• Incorrect payroll category mapping
• Misclassification of allowances or leave types
• Errors in superannuation calculations
• Manual payroll processes
• Lack of internal payroll expertise
• Missing or late STP lodgements

These issues compound over time and often surface during audits or financial reviews.

Modern STP-compliant payroll software automates compliance and significantly reduces risk.

Key features to look for:

1. STP Phase 2 certified reporting
2. Automated ATO lodgements
3. Correct income & allowance mapping
4. Superannuation & SuperStream integration
5. Award interpretation support
6. Leave accrual automation
7. PAYG withholding calculations
8. Audit trails & reporting
9. Secure employee records

Popular STP-compliant platforms include:

• Xero Payroll
• MYOB
• QuickBooks Payroll
• KeyPay
• Employment Hero

(Software selection depends on business size, awards, workforce complexity, and reporting needs.)

At RV Advisory, we support Australian businesses with:

• STP Phase 2 setup & migration
• Payroll software implementation
• Payroll category mapping & configuration
• Ongoing payroll processing
• STP lodgement management
• Superannuation compliance
• Payroll reconciliations
• ATO correspondence support
• Advisory on payroll structure and controls

We combine local Australian compliance expertise with technology-driven payroll processes to ensure accuracy, reliability, and peace of mind.

STP Phase 2 is now the standard for payroll reporting in Australia.

Businesses that:

• use the right software
• configure payroll correctly
• and maintain ongoing compliance

will avoid penalties, save time, and operate with confidence.
If your payroll system hasn’t been reviewed recently, now is the time.

RV Advisory Group assists SMEs across Australia with modern payroll systems, compliance, and advisory support.

For assistance with STP Phase 2 or payroll compliance, speak with our payroll team on (03) 9424 2774 or 0420 661 881, or email admin@rvag.com.au.