Single Touch Payroll (STP) is the way Australian employers report payroll information to the Australian Taxation Office (ATO). Instead of sending one big report at the end of the financial year, employers send a digital report at every pay event — when they pay employees. STP Phase 2, mandatory since 1 January 2022, expanded what gets sent in that report.
What STP Phase 2 changed
Phase 2 doesn’t change when you report — it changes what you report. The headline additions:
- Disaggregation of gross — separate components for ordinary salary and wages, overtime, bonuses and commissions, directors’ fees, paid leave (with leave type codes), allowances (itemised) and salary sacrifice (SS — type S for super, type O for other).
- Employment and income types — codes for each employee’s employment basis (full-time, part-time, casual, labour hire, voluntary agreement, etc.) and income type (salary and wages, working holiday maker, closely held payee, foreign employment, etc.).
- Tax treatment codes — a six-character code that summarises how the ATO should treat an employee’s PAYG withholding (residency, tax-free threshold, STSL/HELP, Medicare adjustments).
- Country codes — required for working holiday makers and foreign employment income.
- Child support — child support deductions and garnishees can be reported through STP, reducing separate reporting to Services Australia.
- Lump sums — extra lump sum codes (including the new Lump Sum E with the financial year it relates to).
- Cessation reason — when an employee leaves, the reason (resignation, dismissal, redundancy, contract end, etc.) is reported with the final pay event, removing the need for separation certificates in most cases.
Why the change?
Phase 2 is designed to reduce duplicate reporting. Once data flows through STP, agencies like the ATO and Services Australia can share it — so employers stop sending the same information multiple times to multiple places. For employees, more accurate withholding and a tidier income statement in myGov.
Who must comply
Every employer who reports under STP must report under Phase 2. That covers virtually all Australian employers (with very narrow exemptions). Some digital service providers received deferrals to transition customers; if your payroll software is on the ATO’s STP product register, it has been Phase 2-ready for some time.
A readiness checklist
- Confirm your payroll software is on the ATO STP product register and configured for Phase 2.
- Map each pay component to the correct Phase 2 category (ordinary, overtime, bonus, allowance type, etc.).
- Review every employee’s employment and income type code.
- Set tax treatment codes correctly — claiming the tax-free threshold, STSL/HELP, Medicare levy adjustments.
- Capture cessation reasons on the final pay run for any leaver.
- Reconcile YTD figures before year-end finalisation.
How Mentsh helps
Mentsh captures the Phase 2 fields at onboarding (employment basis, income type, tax declaration), enforces clean pay-component categorisation, and produces STP Phase 2-ready exports for your payroll provider. See Payroll & Compliance or jump to pricing.