Are you ready for STP Phase 2

Are you ready for STP Phase 2?

In the 2019-20 Budget, the Government announced the expansion of the Single Touch Payroll (STP) system to report additional information. This expansion aims to simplify and streamline the flow of information from employers and employees to various Government departments, like the ATO, Services Australia, and Child Support Services. For further information from the ATO on STP Phase 2, visit

Your payroll software should have everything in place to transition to the STP Phase 2 reporting, but you will still need to check that your payroll settings comply with the requirements.

Xero has broken the process into three steps. These steps are in the STP Phase 2 hub in the Payroll / Single Touch Payroll menu and include linkes to resources and webinars.

Step 1 Employee Records

You will need to update each of your employee records with the following information:

  • Employment Type – Employee or Contractor (for the reporting of SG)
  • Income Type – Salary and wages, Closely held payee or Working holidaymaker
  • Employment Basis – Full Time, Part Time or Casual
  • Tax Scale – as per your employee

Step 2 Earnings and Allowances

Stage two is updating the earnings categories to align with the new reporting requirements. Separate earnings types such as bonuses, commissions, and overtime from ordinary earnings to the correct categories. Directors fees, paid parental leave and workers compensation are also separate from ordinary earnings.

Reviewing and disaggregating allowances is the next step. Allowances that may be included in the hourly rate will now need to be listed and reported separately on the employee’s payslip and under STP Phase 2.

The Building and Construction Award’s general industry allowance is a good example. The general industry allowance has always been included in the hourly rate but under STP Phase 2 reporting, it must be reported as an Industry Allowance as a separate line on the payslip.

For more information on allowances and their treatment under STP Phase 2, see the ATO’s reference guide at

Or to show the rates and allowances for each Award see FairWork’s PACT guide at

Step 3 Leave Categories

Step three is to map the leave types to the appropriate ATO reporting codes in payroll settings. The leave types will be

  • Type O for Other paid leave, including (but not limited to) annual leave, personal / carers leave, long service leave, RDO or TOIL
  • Type A Ancillary and defence leave, including Community Service Leave, Defence Reserve Leave or Jury Duty
  • Type C Cash out of leave in service, used with cashing out leave or for leave loading (if considered OTE and not overtime)

Step 4 File STP2

When your software is updated and ready, you will process and file your STP2 in the same way you have filed STP previously. There will be no change to this process.

Are you ready?

There are many readily available webinars and resources on how to update your payroll software to be STP Phase 2 compliant, but if you want assistance and assurance that it is all done correctly, contact us and we will help you out. We have been training for this transition for a while now and are ready to help you!

Join our blog

Receive the latest insights from Small Business HQ by signing up to our blog.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.