Single Touch Payroll (STP) Australia Guide: Reporting Requirements, Services Australia, and Phase 2 Explained
- Brett Reed
- 6 days ago
- 8 min read
Updated: 2 days ago
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What is Single Touch Payroll (STP)?
Single Touch Payroll (STP) is an Australian government reporting system that requires employers to send payroll data—such as wages, tax, and superannuation—directly to the ATO each time they run payroll.
Instead of reporting annually, STP enables real-time payroll reporting, improving accuracy and reducing administrative burden.
👉 The catch? You need STP-compliant payroll software to report properly.
How does Single Touch Payroll work?
Single Touch Payroll works by automatically sending payroll data to the ATO every time a pay run is processed.
Step-by-step process
You process payroll as usual
Your payroll software sends data to the ATO
Employee records are updated in myGov
STP data flow explained
While this process looks simple, the way this data flows through government systems — especially Services Australia — is where things become more complex.
What does STP report to the ATO?
Each pay run includes:
Salaries and wages
PAYG withholding (Tax)
Superannuation liability
This data is also shared with government agencies, including Services Australia.
Is STP mandatory in Australia?
Yes. All Australian employers must use Single Touch Payroll (STP), even if they only have one employee.
Why STP is harder than it sounds
While STP is designed to simplify reporting, many businesses run into challenges:
Complex reporting requirements
STP Phase 2 classification rules
Manual processes and duplicate data entry
Risk of reporting errors
👉 Managing this manually can quickly become unmanageable.
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How STP connects the ATO, Services Australia, and employees
Single Touch Payroll doesn’t just report data to the ATO — it feeds into a broader government system that directly affects employees.
What Services Australia does with STP data
Services Australia (which manages Centrelink, Medicare, and other payments) uses STP data to automatically track a person’s income.
This means:
Income reported by employers is shared with Services Australia
Employee earnings are updated automatically
Government payments can be adjusted based on real-time income
What this means for employees receiving Centrelink
For employees on payments like JobSeeker or Parenting Payment:
They often don’t need to manually report income anymore
Their income is updated automatically through STP
Payments are adjusted in near real-time based on actual earnings
Why this matters
Less manual reporting → fewer mistakes
Reduced risk of overpayments or debts
Payments are more accurate and up to date
Important limitations to understand
Even though STP automates income reporting:
Some individuals may still need to report income manually
Timing differences can occur between payroll processing and when Services Australia receives the data
👉 This is where confusion often happens — and why accurate payroll reporting is critical.
Why STP reporting accuracy matters more than most employers realise
Because STP data flows directly into Services Australia:
👉 Payroll errors don’t just affect tax — they can affect employee payments.
Example
Two employees both earn $1,000:
Employee A: $1,000 regular wages
Employee B: $1,000 one-off bonus
Under STP Phase 2:
These are classified differently
Services Australia can treat these differently if needed
The risk for employers
If reporting is incorrect:
Employees may receive incorrect Centrelink payments
This can lead to overpayments or debts
Employers may need to correct submissions
👉 This makes accurate STP reporting critical — not just for compliance, but for employee outcomes.
Common STP mistakes employers make
Many businesses unknowingly create compliance risks.
Common mistakes include:
Incorrect income classification (especially under STP Phase 2)
Not separating allowances correctly
Misclassifying employees and contractors
Late or missed submissions
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STP Phase 2 explained
What is STP Phase 2?
STP Phase 2 is an expansion of Single Touch Payroll reporting that requires employers to provide more detailed payroll and employee information to the ATO.
Instead of reporting totals, employers now report income types, classifications, and employment details.
What changed in STP Phase 2 reporting?
Income is broken into categories
Rather than one “gross” figure, payments are split into types, such as:
Ordinary time earnings
Overtime
Bonuses and commissions
Allowances (e.g. travel, tools)
Paid leave (annual, sick, etc.)
Lump sum payments
👉 This helps Services Australia understand what kind of income it is, not just how much.
Tax Treatment, Country Codes, and Income Stream (STP Phase 2)
STP Phase 2 introduces several structured data fields that determine how employee income is reported and interpreted by the ATO.
These include:
Tax Treatment Codes
Country Codes
Income Stream classifications
Together, these define how tax is calculated, how income is categorised, and how data flows through government systems.
Tax Treatment Codes
A Tax Treatment Code is a mandatory six-character code that tells the ATO how an employee should be taxed.
These codes reflect key factors that influence PAYG withholding, including:
Tax Scale (Tax Schedule)
Study and Training Support Loans (STSL), such as HELP or HECS
Medicare Levy variations
👉 The code is automatically generated by payroll software based on employee settings.
How the 6-character tax treatment code works
Each character in the code represents a specific part of an employee’s tax situation:
Characters 1–2: Category of Tax Scale and Options within the Category
These identify the employee’s tax category:
RT – Regular employee with Tax Free Threshold
SS – Seniors and Pensioners who is Single
FS – Foreign resident with a Study and Training Support Loan
HR – Working Holiday Maker working for Registered Employer
Character 3: Study and Training Support Loan (STSL)
S – Employee has a student loan (e.g. HELP/HECS)
X – No loan
Character 4 - 6: Medicare Levy Variation
1, 2, 3, X – Medicare Levy Surcharge
H, F, X - Medicare Levy Exemption
0, #, A, X - Medicare Levy Reduction
Country codes (STP Phase 2)
STP Phase 2 includes a separate country code field used to identify the relevant country in specific reporting scenarios.
Country codes are required where:
An employee is a foreign resident
A working holiday maker is employed
There are cross-border or international employment arrangements
Tax treaty conditions may apply
👉 These codes follow standard country classifications and are included in STP reporting where applicable.
Why country codes matter
Country codes help the ATO:
Apply correct tax rules for foreign workers
Identify residency-related reporting requirements
Determine whether international tax agreements (tax treaties) apply
Incorrect country code reporting can result in:
Misclassification of employees
Incorrect tax treatment
STP reporting errors
Income stream classifications
One of the most important additions in STP Phase 2 is the income stream.
An income stream defines the type of income being paid, not just the amount.
Common income stream types
Income is categorised into streams such as:
Salary and wages
Closely held payees
Working Holiday Makers
Labour hire workers
Foreign employment income
When processing a pay run, payroll amounts are allocated to the appropriate income stream type.
Why income types and country codes matter
Income types and country codes serve three crucial purposes in STP reporting:
1. Tax and reporting classification
They help the ATO:
Determine the correct tax treatment
Map income to the appropriate section of the Individual Income Tax Return (IITR)
2. STP reporting concessions
They help identify whether a payer can claim specific STP concessions.
For example:
Reporting concessions for Closely Held Payees
Reduced reporting requirements in certain scenarios
👉 This can help avoid unnecessary contact or compliance actions from the ATO.
3. International and legal obligations
They clarify:
Whether a tax treaty applies
How income should be reported for foreign workers
The payer’s obligations under international tax rules
How income stream, tax treatment, and country codes work together
These elements are not separate — they work together automatically within payroll systems.
👉 The tax treatment and its relationship to the income stream are determined by how the employee is configured in payroll.
Automated tax calculation
Payroll software applies ATO tax schedules using:
Tax treatment codes
Income stream classification
Pay types and earnings
This ensures:
Accurate PAYG withholding
Consistent STP reporting
Reduced manual errors
Example
Two employees earn $1,000:
Employee A → Salary and Wages income stream
Employee B → Working Holiday Maker income stream
Even though the amount is the same:
Tax treatment may differ
Reporting obligations may differ
Services Australia may interpret the income differently
Why this increases complexity
STP Phase 2 significantly increases the level of detail required in payroll reporting:
More fields must be configured correctly
Data must align across multiple classifications
Errors can impact both tax and government payments
👉 The system is more accurate — but also less forgiving.
Key takeaway
STP Phase 2 is no longer just about reporting payroll totals.
👉 It requires structured reporting across:
Tax treatment codes
Country codes
Income stream classifications
👉 These determine how payroll data is taxed, reported, and interpreted across the ATO and Services Australia.
These requirements are one of the main reasons STP Phase 2 can be difficult to manage manually — particularly for businesses with diverse workforces or complex payroll scenarios.
3. Child support and garnishees
STP Phase 2 includes:
Child support deductions
Salary sacrifice details
👉 This allows Services Australia to better administer child support and related obligations.
4. Lump sum and termination reporting
More detailed reporting for:
Employment Termination Payments (ETPs)
Redundancies
Unused leave payouts
Why STP Phase 2 matters
For employers
Reduced duplicate reporting
Simplified compliance
Less manual admin
For employees
More accurate Centrelink payments
Reduced need for manual reporting
For government
Better real-time data
Improved system accuracy
Reduced duplicate reporting
STP Phase 2 removes the need for several separate employer reports, including:
TFN declarations → now included in STP
Lump sum reporting → included
Some employment separation certificates → reduced need
👉 This simplifies compliance for employers.
What hasn’t changed with STP
Employers still report every pay run
Reporting still happens via payroll software
Employees still access information through myGov
Why this creates complexity for employers
While STP simplifies reporting at a system level, it introduces complexity at the payroll level:
More detailed reporting requirements
Greater impact of errors
Increased need for correct classification
👉 The system is more connected — but also less forgiving.
How e-PayDay FREEPAY® simplifies STP and Services Australia reporting
e-PayDay FREEPAY® is designed to handle this complexity with automation.
Instead of manually managing classifications and compliance:
STP reports are generated and sent automatically
Income is categorised correctly for Phase 2
Data flows accurately through to the ATO and Services Australia
👉 So you don’t have to worry about how payroll data is interpreted downstream.
The big picture: STP in Australia
STP Phase 2 turns payroll reporting from:
“Here’s how much we paid”
into:
“Here’s exactly what we paid, why, and under what conditions”
This improves:
Tax accuracy
Compliance visibility
Employee transparency
The easiest way to stay STP compliant
You can manage STP manually — but it’s slow, complex, and error-prone.
Or you can use software designed to handle it for you.
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Frequently asked questions about STP
What is Single Touch Payroll (STP)?
Single Touch Payroll is a system where employers report payroll data to the ATO each time they run payroll.
Who needs to use STP?
All Australian employers, regardless of size.
What is STP Phase 2?
STP Phase 2 expands reporting requirements to include more detailed payroll and employee data.
Do employees still need to report income to Centrelink?
In many cases, no — but some individuals may still need to report income manually depending on their situation.
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