Content reviewed and verified by Graham Chee, with FCPA-led practice at Local Knowledge, Mascot NSW. Continuous CPA Australia member since 1986. Prior career at Goldman Sachs, BNP Investment Management and Merrill Lynch..
Understanding STP Phase 2
Single Touch Payroll (STP) Phase 2 represents a significant evolution in payroll reporting for Australian businesses. Introduced by the ATO, Phase 2 expands reporting requirements to include additional information about employee payments, tax withholding, and superannuation. This comprehensive guide helps you understand your obligations and implement compliant processes.
Key STP Phase 2 Requirements
Disaggregated PAYG withholding reporting - separate reporting for different payment types
Employment basis reporting - casual, full-time, part-time, labour hire classifications
Country code reporting for working holiday makers
Cessation type and reason reporting when employees leave
Income type reporting for various payment categories
Tax treatment codes for specific payment scenarios
STP Phase 2 Implementation Steps
Assess Current Systems
Review your payroll software capabilities and identify required upgrades for Phase 2 compliance
Update Employee Records
Collect and verify employment basis, country codes, and other new data fields for all employees
Configure Payroll Software
Set up disaggregated reporting, income types, and tax treatment codes in your system
Test Reporting
Conduct trial STP Phase 2 submissions to identify and resolve any data quality issues
Train Staff
Ensure payroll team understands new requirements and can accurately classify payments and employment types
Monitor Compliance
Establish ongoing processes to maintain data accuracy and meet reporting deadlines
Common STP Phase 2 Questions
Q.When is STP Phase 2 mandatory?
STP Phase 2 became mandatory for substantial employers (20+ employees) from January 1, 2022, and for all other STP reporters from January 1, 2023. However, the ATO has provided transitional arrangements for businesses needing more time.
Q.What happens if I miss the deadline?
The ATO has been taking a supportive approach during the transition period. However, ongoing non-compliance may result in penalties. Contact the ATO early if you anticipate difficulties meeting requirements.
Q.Do I need new payroll software?
Most modern payroll software has been updated for Phase 2. Check with your provider to ensure your version supports all Phase 2 requirements. Some older systems may require upgrades or replacement.
Q.How do I classify employment basis correctly?
Employment basis must reflect the actual employment arrangement: full-time (regular hours), part-time (regular but fewer hours), casual (irregular hours, casual loading), or labour hire. Misclassification can lead to compliance issues.
Q.What are disaggregated PAYG amounts?
Phase 2 requires separate reporting of tax withheld for different payment types (salary/wages, allowances, bonuses, etc.) rather than a single total. This provides the ATO with more detailed information.
About the Author
Graham Chee, FCPA, CPA, GRCP, GRCA
Principal and Founder, Local Knowledge
Graham Chee is the principal and founder of Local Knowledge, an FCPA-led Australian practice that brings institutional-grade compliance, investment-structure and intellectual-property experience directly to owner-managed businesses. Graham is a Fellow of CPA Australia (FCPA since November 2005, continuous CPA member since 1986) and holds the OCEG Governance, Risk & Compliance Professional (GRCP) and Governance, Risk & Compliance Auditor (GRCA) designations. His prior career includes senior roles at Goldman Sachs, BNP Investment Management and Merrill Lynch. Graham was previously portfolio manager of the Asian Masters Fund (IPO December 2007 – 31 December 2009), which returned +29% in AUD terms versus the MSCI Asia Pacific (ex Japan) benchmark. He signs off on 100% of client files personally.
Areas of Expertise:
Industry-specific insights
This article is especially relevant to these industries. See how we tailor our services for each.
Need help with STP Phase 2 compliance? Contact our payroll experts today.
This is just one of hundreds of insights our platform generates. Clients get personalised strategic intelligence that gets smarter every single day.
Graham Chee FCPA, CPA, GRCP, GRCA · Principal, Local Knowledge · Mascot NSW · CPA-signed files