Single Touch Payroll Phase 2: What to expect and how to get ready

Single Touch Payroll Phase 2

**This blog post will be continuously updated as and when we find out more about the STP phase 2 changes. For the most up to date STP news, keep an eye on the ATO website.**

In July 2018, Single Touch Payroll (STP) changed the way Australian businesses reported their payroll.

By now, everyone reading this blog post should know what Single Touch Payroll is - but we’ll give you a quick summary. Single Touch Payroll was a change in the way employers report PAYG and super information to the ATO. 

At the time, the roll out of Single Touch Payroll was an enormous change for businesses, and the payroll software providers that had to adapt their technology to remain compliant. Software vendors had a long journey in updating their technology and getting ATO certification. Some managed successfully (KeyPay was one of the first); but some either had to make the decision to integrate with certified STP software, or fail in meeting their customers’ needs.

That was STP phase 1 - and now phase 2 is on the horizon.

What is Single Touch Payroll phase 2?

STP phase 2 aims to streamline the reporting obligations for the payer and payee and remove the need for manual reporting to other government agencies. 

Additionally, the ATO is changing reporting requirements so that they can better assist employees when completing their Individual Income Tax Return (IITR) and income tested payments are correctly calculated when taking into consideration employee earnings for the financial year. Put simply, phase 2 is about establishing an "all inclusive" baseline dataset that incorporates reporting requirements for multiple government agencies.

With this, phase 2 will bring more complex reporting and therefore like phase 1, businesses and vendors will have to prepare for the challenges of the next roll-out.

What changes will be made for STP phase 2?

There are a lot of changes to be made for STP phase 2, and some are very technically detailed. For the ease of readers we have detailed a summary of changes that will impact businesses below:

Termination reason

A reason for termination is going to be mandatory when an employee finishes their employment. Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO and so will take away the need for an employment separation certificate to be issued to the employee altogether. KeyPay has already built out the termination reason reporting functionality, in preparation for Phase 2.

Child support garnishee / deduction amount

Currently, an employer has to submit a deduction report to the relevant child support agency when they deduct the child support from an employee's pay. Phase 2 will allow employers to report child support deductions/garnishees via pay events thus removing the need to report separately on a monthly basis.  This will initially be voluntary reporting and if employers do not choose to report via STP they will need to continue to report monthly as per the existing processes.

Income stream collection

Employers will need to classify the payments made to an employee following an ATO term called “Income stream collection” when they submit their STP report to the ATO. This includes income type, payment type and may also include a country code (for specific income types).

Tax file number declaration 

Employers are currently required to submit a tax file number declaration to the ATO detailing the tax information for new employees and any existing employees where their tax situation changes. Phase 2 will incorporate employee tax information via STP reporting thus eliminating the need to submit tax file declarations to the ATO as a separate process. This means that for phase 2, the existing functionality of tax file declaration reporting in KeyPay will become redundant as it will be done via STP reporting instead.

Tax treatment codes

Currently employee tax information is part of the tax file number declaration. Phase 2 will introduce a 6 character tax treatment code to indicate what PAYG tax scales and other components were applied to the employee to determine withholding amount. This is something the payroll software vendor will have to change in their system for STP reporting rather than a new process for employers.

Lump sum E letters

At present, employers are required to provide lump sum E letters to employees each financial year.  The STP changes will mean that this information will be included in the pay event prior to finalisation of the payee Income Statement and so will take away the need for the employer to provide the lump sum E letter altogether.

Transitioning employees from another payroll system

Businesses transitioning from one payroll system to another will be able to enter the previous BMS ID/payee IDs in the new system and then proceed to use the new system’s BMS ID/payee ID. The ATO will link the information so that there is only one income statement reported for each employee. This replaces the need for manual adjustments to ensure employee YTD earnings are not overstated. 

Paid leave

Paid leave will no longer be incorporated as part of gross earnings when reporting earnings via STP. Rather, paid leave will be reported using itemised leave type codes.

Negative YTD reporting

The ATO will allow negative YTD amounts to be submitted in the STP report.

Allowance items

Additional allowance type codes will be added to meet the new reporting requirements. This will allow the ATO to assist the employee when completing their IITR.

When are the STP phase 2 changes being made?

The ATO is introducing phase 2 of STP reporting early next year. Mandatory reporting will begin from 1 January 2022 and voluntary reporting can start from now.

Get ready for Single Touch Payroll Phase 2 with KeyPay

Remember how quickly Single Touch Payroll came around back in 2018? If businesses have learned anything from the initial roll out, it is to be prepared as early as possible. Businesses that adapt quickly will always remain ahead of the competition.

Ensuring you’re with a reliable software vendor that will be ready for the mandatory start date is key for STP success. With over 175,000 Australian businesses on the platform, KeyPay was among the first payroll software vendors in Australia to be STP compliant, certified by the ATO. 

Our awesome product team is already working on the phase 2 STP changes to ensure new reporting requirements are ready for January 2022. With compliance built at core, KeyPay has the proven ability to not only meet ever-evolving Australian legislation such as STP, but make managing it as seamless as possible for payroll administrators and outsourced providers. 

If you’re a forward thinking business looking to be proactive in meeting STP phase 2 requirements, get in touch with KeyPay at or try KeyPay for yourself - free for 30 days.

Kate Brown

Marketing Manager at KeyPay

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