STP and ATO Reporting: A Compliance Guide for Australian Employers

Author Image Thavishya Kinson

Published: Apr 20, 2025 6:27:38 PM

Introduction

Single Touch Payroll (STP) is a mandatory reporting system introduced by the Australian Taxation Office (ATO) to streamline payroll reporting for businesses. Under STP, employers must submit employee salary, tax withholding (PAYG), and superannuation information to the ATO electronically after each pay run. This ensures real-time payroll transparency, reduces administrative burden, and helps the ATO track compliance more efficiently.

Accurate and timely STP reporting is crucial to avoid penalties and ensure employees receive the correct entitlements. Late or incorrect submissions can lead to compliance risks, financial penalties, and issues with employee tax and superannuation records. As the STP system evolves, with Phase 2 introducing more detailed reporting requirements, employers need to stay up to date with their obligations.

This guide provides a comprehensive overview of STP requirements, ATO reporting obligations, and best practices for ensuring accurate submissions. Whether you are a small business navigating STP for the first time or a larger employer looking to refine your processes, this compliance guide will help you meet your payroll obligations seamlessly.

 

What is Single Touch Payroll (STP)?

Single Touch Payroll (STP) is a digital reporting system mandated by the Australian Taxation Office (ATO) that requires employers to report payroll data—including employee wages, PAYG withholding tax, and superannuation contributions—each time they process a pay run. This system streamlines payroll reporting, reducing the administrative burden on businesses while ensuring employees’ tax and superannuation records remain up to date.

STP was introduced in 2018 for businesses with 20 or more employees and later extended to small businesses (those with 19 or fewer employees) in 2019. This transition marked a shift towards real-time payroll reporting, improving accuracy and compliance with tax and superannuation regulations.

In 2022, STP Phase 2 was launched to expand the data reported to the ATO. Under STP Phase 2, employers must now provide more detailed information, including:

Income types and tax treatments (e.g., salary and wages, allowances, overtime, bonuses, and directors’ fees).
Employee status and employment conditions, such as whether a worker is full-time, part-time, or casual.
Breakdown of gross income components, separating ordinary earnings from leave payments and allowances.

By expanding STP reporting, the ATO can better pre-fill employee tax returns and ensure compliance with superannuation and tax obligations. Employers must use ATO-compliant payroll software to submit accurate and timely reports, avoiding potential penalties for non-compliance.

 

STP Reporting Requirements for Employers

Under Single Touch Payroll (STP), employers must report specific payroll details to the Australian Taxation Office (ATO) every time they process employee payments. This ensures transparency and compliance with tax and superannuation regulations. The key reporting requirements include:

1. Employee Salaries and Wages

Employers must report all gross payments made to employees, including:

  • Base salary and wages for full-time, part-time, and casual workers.
  • Overtime payments and penalty rates.
  • Bonuses and commissions paid to employees.
  • Allowances such as travel, tools, or meal allowances.
  • Paid leave entitlements, including annual leave, personal leave, and long service leave.

This data helps the ATO track employee earnings and ensure tax compliance.

2. PAYG Withholding (Tax Withheld from Wages)

STP requires employers to report Pay-As-You-Go (PAYG) withholding tax, which is deducted from employee wages before payment. The ATO uses this information to ensure employees' tax obligations are met and to pre-fill their tax returns.

3. Superannuation Contributions

Employers must report superannuation liabilities, which refer to the amount of superannuation owed to employees, even if the payment has not yet been made. This ensures employees' super entitlements are correctly recorded and helps the ATO monitor compliance with Superannuation Guarantee (SG) obligations.

4. Income Types and Tax Treatments

With the introduction of STP Phase 2, employers must classify payments based on income type and applicable tax treatment codes. These classifications help the ATO apply the correct tax rates and entitlements. Common income types include:

Salary and wages (standard employee payments).
Directors' fees (payments to company directors).
Closely held payees (such as family members of business owners).
Labour hire payments (for workers employed through a labour-hire firm).
Voluntary agreements (for independent contractors with agreed PAYG withholding).

By correctly categorising income and tax treatments, businesses can avoid errors and ensure accurate reporting. Employers must ensure their payroll software is STP-compliant, as incorrect or incomplete reporting may lead to penalties.

 

ATO Reporting and Compliance Obligations

Employers must adhere to strict ATO reporting and compliance obligations under Single Touch Payroll (STP). Failure to meet these requirements can result in penalties, so it’s essential to understand the reporting process, how to handle errors, and when exemptions may apply.

1. Payroll Data Submission for Each Pay Cycle

Employers must report payroll data electronically to the ATO every time they pay employees. This includes:

Employee earnings (gross wages, allowances, overtime, and bonuses).
PAYG withholding tax deducted from employee wages.
Superannuation liabilities, which indicate the amount owed for each employee.

STP submissions must be made using ATO-compliant payroll software, ensuring real-time tracking of payroll information and tax obligations.

2. End-of-Year Finalisation Declarations

At the end of each financial year, employers must complete an STP finalisation declaration to confirm that the payroll data reported throughout the year is accurate. This process eliminates the need for traditional payment summaries (group certificates) and allows employees to access their income statements via myGov.

To comply, employers must:
Review reported payroll data for accuracy.
Submit a finalisation declaration via STP-enabled software.
Complete this process by 14 July (for most employers) to ensure employees' tax returns are pre-filled correctly.

3. Corrections and Amendments

If an employer identifies errors in an STP submission, they must correct them as soon as possible. Corrections can be made in two ways:

  • In the next pay run, by adjusting the reported amounts.
  • By submitting an updated STP report with the corrected payroll data.

The ATO does not impose penalties for accidental mistakes if they are corrected promptly.

4. STP Deferrals and Exemptions

In certain cases, the ATO may grant deferrals or exemptions from STP reporting, including:

  • Small businesses facing financial hardship.
  • Employers with unreliable internet access, such as those in remote areas.
  • Closely held payees (e.g., family businesses), where reporting can be done quarterly instead of per pay run.

Employers seeking an exemption or deferral must apply directly to the ATO and provide valid reasons for their request.

By ensuring timely and accurate STP reporting, employers can maintain compliance, avoid penalties, and streamline payroll processes.

 

Ensuring Accuracy in STP and Tax Reporting

Accurate Single Touch Payroll (STP) reporting is essential for compliance with Australian Taxation Office (ATO) regulations. Errors in payroll submissions can lead to compliance issues, delayed employee payments, and potential penalties. Employers can ensure accuracy by following these key practices:

1. Use ATO-Compliant Payroll Software

Employers must use STP-enabled payroll software that meets ATO requirements. To maintain compliance:
Ensure the software is up to date with the latest ATO changes.
Check that it correctly reports wages, PAYG withholding, and superannuation liabilities.
Verify that STP Phase 2 requirements (such as income types and tax treatment codes) are properly configured.

Using the right software streamlines payroll processing, reduces errors, and ensures real-time reporting to the ATO.

2. Conduct Regular Payroll Audits

Performing routine payroll audits helps detect and prevent errors before they become compliance issues. Employers should:
Verify employee details, including TFNs, pay classifications, and leave entitlements.
Check that PAYG withholding amounts match tax tables and ATO guidelines.
Confirm that superannuation contributions are reported and paid correctly.

Regular audits minimise reporting discrepancies and ensure payroll accuracy.

3. Stay Updated on ATO Guidelines

The ATO frequently updates payroll regulations and STP reporting requirements. Employers should:
Monitor ATO announcements regarding changes to STP obligations.
Subscribe to payroll compliance updates from the ATO or professional bodies.
Ensure their payroll system is adjusted for any new tax rates or reporting rules.

Being proactive about regulatory changes helps businesses avoid non-compliance penalties.

4. Seek Professional Advice When Needed

Payroll compliance can be complex, especially for businesses with diverse workforces. Employers should:
Consult with payroll specialists or accountants for expert guidance.
Engage HR and finance teams to review payroll processes.
Use ATO resources or professional associations for compliance support.

By taking these steps, businesses can ensure accurate STP submissions, meet tax obligations, and maintain full compliance with ATO requirements.

Conclusion

Accurate Single Touch Payroll (STP) reporting is essential for maintaining payroll compliance and meeting Australian Taxation Office (ATO) regulations. By ensuring that employee wages, PAYG withholding, and superannuation contributions are reported correctly, businesses can avoid penalties and streamline their payroll processes.

Automated STP-enabled payroll solutions play a vital role in simplifying reporting, reducing errors, and keeping up with changing compliance requirements. With ATO-compliant software, regular payroll audits, and a proactive approach to tax obligations, businesses can ensure accurate and timely submissions.

Staying informed about STP updates and compliance requirements is crucial, and seeking professional guidance from payroll specialists or accountants can provide added confidence. Whether you run a small business or a large enterprise, maintaining STP accuracy supports both legal compliance and employee trust.