Single Touch Payroll Software in Australia: A Practical Guide to STP, Phase 2 & Compliance

The modern Payroll is promised to operate as a contemporary application- much faster, automated, and constantly connected. To Gen Z founders and businesses being led by millennials, manual reporting is a thing of the past. The change can be seen in adoption; the Australian Taxation Office reports that over 98 percent of employers currently use Single Touch Payroll, making it the universal payroll reporting system in Australia. STP has successfully substituted the traditional end-of-year payroll reporting with real-time compliance.

Simultaneously, companies are dealing with increasingly complex forms of workforce, such as remote workers, non-permanent workers, and flexible pay arrangements. To assist this transition, ATO enhanced reporting by enlarging Single Touch Payroll Phase 2, requiring more information in the payroll. For business owners, finance managers, and startup leaders, knowledge of STP is no longer a luxury; it remains the key to staying compliant as they grow efficiently.

How Single Touch Payroll Works?

Single Touch Payroll is achieved by integrating ATO reporting with payroll processing. The payroll software automatically transmits the necessary payroll data to the ATO whenever an employer pays their employees. This eliminates individual payroll statements, activity statements, or end-of-year reconciliations of employee income.

The data announced under STP includes gross wages paid to employees, pay-as-you-go withholding, and superannuation due. This information is transmitted safely when payment is made, and therefore, the ATO has a current picture of payroll at all times. STP, unlike the conventional reporting systems, will not use estimates and submissions that are delayed.

From the employee's perspective, STP enhances transparency and information access. Through myGov, employees will be able to view their income statements, monitor year-over-year earnings, and be ready to file taxes. This reduces confusion about payslips, payment summaries, and tax statements.

To the employers, STP incorporates compliance into their payroll systems. Paying out properly makes reporting a by-product of the compensation provided to employees, other than conducting it as an independent administrative assignment. In the long run, this minimises errors and compliance risks and simplifies financial management.

STP Phase 2: What's New? 

Single Touch Payroll Phase 2 is a dramatic improvement on the initial STP system. Though the first implementation covered total payroll numbers, the second phase requires employers to provide a breakdown of workers' income and benefits.

The businesses under STP Phase 2 are required to report the following types of income: ordinary time earnings, overtime, bonuses, commissions, allowances, paid leave, and termination payments. Furthermore, the employment conditions, such as whether an employee is full-time, part-time, or casual, should also be specified. This level of control enhances the precision and the reliability of payroll information.

The main objective of STP Phase 2 is to reduce the need for manual intervention by ATO and Services Australia. With a more understandable categorisation of income, government agencies may be more efficient in evaluating their tax requirements and/or employee rights, and avoid many ongoing inquiries and corrections.

Phase 2, however, is also more demanding of employers. The Payroll systems need to be set up correctly, and the income categories need to be adequately mapped. Improper configuration is prone to reporting errors; therefore, continuous payroll audits and professional assistance are more vital.

Who Needs to Use Single Touch Payroll?

Single Touch Payroll applies to the majority of Australian employers, regardless of size or industry. If your company pays staff, STP requirements are likely mandatory and must be met continuously.

• Small businesses (1-19 employees): Small employers must file payroll information using STP after they make each payroll. Whereas some concessions might be allowed in particular circumstances, the continued compliance is likely.
• Medium and large employers: Businesses employing 20 or more workers are obliged to harmonize both STP and STP Phase 2 in full and remain without any broad exceptions.
• Not-for-profit organisations: They qualify for coverage under STP legislation and therefore must report payroll data similarly to for-profit businesses.

Sole traders employing workers: Sole traders who hire employees, even those working casually or part-time, must use STP for payroll reporting.

Benefits of Single Touch Payroll for Businesses

Although STP is a mandatory compliance measure, it provides considerable benefits to an organization, including increased payroll efficiency and greater control over the business.

• Less administrative overhead: Automated reporting eliminates manual handling of payroll and other compliance tasks, saving time every pay period.
• Better payroll accuracy: Real-time reporting minimizes errors, inconsistencies, and end-of-year payroll adjustments.
• Streamlined EOFY operations: Digital EOFY processes would eliminate the need for payment summaries, reducing end-of-year reconciliation activities.
• Better compliance control: Ongoing reporting helps companies stay in step with the ATO's requirements and detect issues promptly.

Best Software for Single Touch Payroll

Single Touch Payroll software is a significant issue for Australian businesses, so selecting the right software is vital for compliance, accurate reporting, and payroll efficiency. As STP Phase 2 is rolled out, payroll systems should support finer income categorisation, real-time ATO reporting, and updated infrastructure to reflect legislative changes. The STP payroll solutions described below are popular in Australia and address the needs of businesses across all sizes, budgets, and operations.

Xero STP

Xero provides payroll on a cloud service that is fully compatible with its accounting platform. It helps with automated STP and STP Phase 2 reporting, real-time Payroll updates, and easy-to-use dashboards, which are popular with startups and businesses expanding.

MYOB offers a full breadth of Australian-specific payroll solutions. It maintains intricate payroll designs, provides further STP Phase 2 statements, and can provide reasonable local assistance to businesses with complex payroll structures.

QuickBooks Payroll Australia

QuickBooks Payroll can be recommended to a small business that is interested in simplicity and a low price. It integrates payroll and accounting into a single system, providing easy setup and dependable STP reporting without the administrative-intensive work.

Reckon Payroll

Reckon Payroll specializes in payroll core services for small businesses. It offers affordable STP compliance with an easy-to-use interface, making it suitable for employers with simple payroll requirements.

Sage

Sage offers scalable payroll solutions for growing organisations. It is found to be compliant with STP Phase 2 and enhanced reporting, and it assists companies in managing increasingly complex payroll.

Payroller

Payroller is a small payroll software that targets sole traders and start-ups. It provides simple payroll services and STP-compliant reporting at very low cost, making it well-suited to small teams.

Employment Hero

Employment Hero combines payroll, employee management, and HR management. It provides STP Phase 2 reporting and employee self-service features, including payroll and people operations simplification.

STP Payroll Reporting Process

The STP payroll reporting procedure runs in tandem with normal payroll operations and therefore does not create any additional reporting.

1. Install STP-compatible payroll software: It is recommended to correctly establish business information, employee personal records, and wage types to comply with the ATO.
2. Keep employee records: ensure TFNs, employment terms, and pay scales are in the correct format and up to date.
3. Process payroll: compute wages, pay as you go withholding, and superannuation as a regular process.
4. File a STP report: It is a system that automatically sends payroll information to the ATO during employee pay.
5. Review confirmations: Receipt of checks and acceptance of confirmations immediately address validation errors or warnings.

Common Single Touch Payroll Mistakes & How to Avoid Them

There is a possibility of STP errors even within automated systems unless payroll processes are handled carefully.

• Incorrect income classification: ATO discrepancies may arise from misreporting allowances, overtime, or leave under STP Phase 2. Periodic payroll reviews help ensure that income types are mapped appropriately.
• Missing or incomplete employee details: Details such as TFNs or inaccurate personal information may result in rejection of the submission. This risk is mitigated by verifying employees' data during onboarding.
• Late or missed STP lodgements: STP reporting should be made each pay run. Payroll schedules and reminders can be automated to maintain compliance.

STP and Outsourced Payroll Services

Internal payroll management is very resource-intensive in most businesses as STP requirements become more comprehensive. In particular, STP Phase 2 advises correct income mapping, system administration, and periodic compliance findings.

Outsourced payroll services entail the availability of a person with expertise who is up to date with ATO legislation, software updates, and reporting requirements. This minimizes the risk of errors and ensures that payroll information is filed correctly and on time.

Outsourcing payroll also supports businesses in complex situations, such as allowances, employee terminations, and EOFY modifications. Compliance is managed by professional officers rather than using in-house teams to make sense out of the new rules.

For Australian businesses, services such as Aone Outsourcing's end-to-end STP payroll support enable organisations to focus on growth while maintaining sufficient compliance.

EOFY Finalisation with STP

EOFY Finalisation: This is a vital aspect of STP compliance. It entails verification that all payroll information given during the financial year is correct and comprehensive.

After finalising EOFY, the employee income statement item is marked as tax-ready in myGov. This eliminates the need to make payment summaries and allows the workers to file their tax returns without wasting time.

The critical considerations of EOFY are:

• Checking payroll during the year.
• Reporting errors or omissions: correction.
• Finalising STP until the ATO deadline.

Early EOFY finalisation helps businesses avoid international fines and start a new financial year with clean payrolls.

The Bottom Line!

Single Touch Payroll has revolutionized payroll compliance in Australia by replacing periodic reporting with a real-time digital system. STP helps modern businesses promote transparency, accuracy, and effective payroll management when it is correctly implemented.

How the STP Phase 2 is set up and kept current is even more critical in light of its introduction. By using the right payroll software or an expert outsourced payroll firm, any business that does not neglect STP can avoid risks, save time, and facilitate long-term growth.

FAQs 

What is Single Touch Payroll in Australia?

Single Touch Payroll is a system provided by the ATO that employers must use to report payroll information when employees receive payments.

Is STP mandatory for all businesses?

The majority of employers in Australia (both big and small) are required to use STP, even those employed by individuals and small businesses.

What is STP Phase 2?

STP Phase 2 makes payroll reports even more detailed, with income types and employment terms broken down.

Do sole traders need STP?

Sole traders are obliged to apply STP when they hire employees, not when they run their business without employees.

Can I lodge STP without payroll software?

Generally, STP has to be filed using STP-supported payroll software or a registered payroll service provider.