What Is Single-Touch Payroll and How to Stay Compliant?

Single-Touch Payroll (STP) has revolutionised the way businesses in Australia handle single touch payroll compliance, streamlining reporting processes and ensuring real-time tax reporting to the Australian Taxation Office (ATO). Introduced by the government to simplify payroll and tax submission, STP replaces traditional annual payment summaries with instant, digital submissions for every pay cycle. This not only saves businesses time but also reduces errors, making tax time simpler for both employers and employees.single touch payroll compliance

In this guide, we’ll walk you through the ins and outs of STP, from understanding its key features to staying compliant and avoiding costly penalties.

How to Ensure STP Compliance

Ensuring STP compliance isn’t just about having the right software—it’s about staying organised, keeping up with reporting deadlines, and making sure you’ve got all the right employee details in place. Here’s where businesses sometimes stumble: timely and accurate submission of payroll data to the ATO.

I’ve worked with businesses who thought they were on top of their payroll reporting, only to realise that they missed a key deadline or forgot to update employee tax information. These small oversights can lead to hefty fines, and that’s not something any employer wants to deal with. So, let’s break down some of the key obligations:

• Timely Submission: The most critical obligation under STP is that you report your payroll data on or before each payday. That means if your pay cycle is weekly, you’ll need to ensure that your STP submissions are made at least once a week. For businesses with monthly payroll runs, the submission must happen before or on payday.
• Employee Data: Your employee records must be up to date. This includes their personal details like their Tax File Number (TFN), superannuation fund information, and employment status (whether they’re full-time, part-time, or casual). When this data changes (like a new TFN, updated super details, or a change in employment type), you need to ensure your payroll software reflects these changes promptly. Not updating this information can lead to mismatched data between your records and the ATO, which could result in compliance issues.

Take a real example from a small business in Queensland. They had an employee who had recently switched from casual to full-time, but the payroll system wasn’t updated to reflect this change. When the ATO received the wrong employment classification, the business was asked to resubmit the information, which resulted in unnecessary delays and fines. A simple update to the employee’s status could’ve avoided the whole situation.

• Finalisation: At the end of the financial year, businesses must notify the ATO that the last payroll run has been completed for the year, making employee income statements “tax-ready” for myGov. For FY2025, the ATO’s finalisation deadline is July 14, 2025, for most businesses. If you’re working with closely held payees, the finalisation for these businesses is September 30, 2025. It’s important to remember that even if your last payroll run is in June, you’ll still need to make sure the data is submitted and marked as final.

Choosing the Right Payroll Software

One of the most common pain points I see with businesses trying to stay compliant is outdated payroll systems. STP has evolved quite a bit, especially with the introduction of Phase 2, and if your software isn’t updated to meet these new requirements, your reports may be rejected. It’s like trying to drive a car with a flat tire—you can’t move forward until you fix it.

Here’s the thing: the right STP-enabled payroll software will help you stay compliant by automating the process, reducing errors, and ensuring that your submissions are timely and correct. But with so many options out there, how do you pick the right one? Let’s take a look at some options:

• Xero: I’ve worked with businesses that swear by Xero, especially for larger teams. The STP setup is relatively seamless, and the system integrates well with other apps, which is great for businesses that also use accounting tools. Xero makes sure that all payroll information, including tax withholding and superannuation contributions, is submitted directly to the ATO on time.
• MYOB: If you’re already using MYOB for accounting, their payroll module could be a great addition. The system is STP Phase 2 compliant and has a good track record for customer support. However, some users have found that the payroll feature can be a bit clunky, and it’s something I’ve had to help clients navigate more than once.
• KeyPay: KeyPay is another solid option. It’s user-friendly, provides automatic superannuation calculations, and offers integration with other software, making it ideal for businesses with complex payroll needs. It’s also great for businesses that need employee self-service portals, so employees can access their pay slips and entitlements on their own.

When choosing the software that’s right for you, consider your business size and complexity. For smaller businesses, simpler solutions like Easy Payslip may suffice, while larger businesses or those with more intricate payroll needs may benefit from Xero or KeyPay.

One thing I always recommend to businesses is to regularly check for software updates, particularly around the ATO’s Phase 2 reporting requirements. Payroll systems must stay in sync with the latest government rules to avoid submission errors or missed deadlines. It’s essential for payroll automation and real-time reporting to be up to date.

Why STP Matters for Your Business

I remember when STP was first announced, many small business owners were sceptical. After all, compliance regulations can feel like a never-ending mountain to climb. But having worked closely with a few local businesses to implement STP, I can tell you this: once it’s up and running, it can actually ease a lot of the load.

For employers, one of the biggest wins is the reduction in administrative burden. Before STP, you’d spend hours getting everything together for end-of-year reports. Now, with STP, once you’ve paid your employees, everything gets reported directly to the ATO—no need to manually fill out annual summaries. This reduces the time spent on paper-based processes and cuts down on the risk of making mistakes in your reports.

But the real kicker? STP makes it much easier to keep on top of compliance with the ATO. The system is updated in real time to reflect changes in tax codes or superannuation rates, meaning that your software will automatically stay in line with the latest regulations. No more last-minute scrambling to figure out what’s changed in the tax system—STP keeps things in check for you.

Employee Benefits of STP

I’ve also seen firsthand how STP benefits employees. Take the real-time access to income statements, for instance. Previously, employees would have to wait until the end of the financial year to receive their payment summaries. Now, they can log into their myGov account at any time and access up-to-date records of their pay and tax details. This makes tax time much easier for them, as the information is pre-filled into their tax returns.

Here’s an example: One of our clients had an employee who was looking to apply for a home loan. Thanks to STP, the employee was able to access their pay details instantly and provide the bank with up-to-date, accurate information, which sped up the loan approval process. It’s those little conveniences that make a big difference.

Moreover, STP also helps with improving service delivery for employees. Information shared through STP can be used by Services Australia to streamline processes for things like Family Tax Benefit payments and claims for government services. Essentially, STP makes sure that employees’ entitlements are accurately recorded and easily accessible, which reduces delays in accessing these services.

STP Phase 2: The Expanded Requirements

The next big milestone for STP came with Phase 2, which became mandatory on January 1, 2022. For many businesses, Phase 1 (the initial rollout) was just the beginning. Phase 2 expanded the reporting requirements significantly, adding more granular detail to the data that needs to be submitted to the ATO.

Under Phase 2, employers must now provide detailed income breakdowns. Instead of reporting just the total gross amount of pay, employers must now itemise various types of payments, such as overtime, allowances, and salary sacrifices. This level of detail helps the ATO better track employee payments and ensures that tax and superannuation contributions are accurate.

For example, let’s say an employee receives base wages, plus an overtime payment and a travel allowance. Under Phase 2, the employer must now separately report each of these payments instead of lumping them all together as ‘gross income’. It’s a little more work upfront, but it means far more transparency for both the ATO and the employee.

What Employers Need to Know About Phase 2

With these expanded requirements, it’s crucial for employers to pay close attention to employment conditions. Phase 2 mandates that employers specify whether an employee is full-time, part-time, casual, or subject to concessional reporting. Additionally, employers must report termination details, including the reason for an employee’s departure, whether it’s resignation, retirement, redundancy, or dismissal. This information provides the ATO with a clearer picture of an employee’s history and ensures that everything from final pay to superannuation is calculated accurately.

Real-world scenario: A café in Melbourne employed both part-time and casual staff. With Phase 2 requirements in place, they now need to report whether their employees are working under full-time contracts, casual arrangements, or other employment conditions. This extra step may seem like a hassle, but it helps ensure that each employee’s entitlements are correctly recorded. It also protects the business from potential issues down the line regarding misclassification of workers.

For businesses dealing with closely held payees—like family members in a family business or company directors—Phase 2 also requires more detailed reporting. While businesses with closely held payees were allowed to report quarterly, under Phase 2, the reporting requirements are more stringent, ensuring that even small business owners with family members on payroll stay fully compliant with ATO rules.

Penalties for Non-Compliance with STP

When I speak with small business owners about the potential penalties for non-compliance, it’s always an eye-opener. The ATO’s enforcement of Single-Touch Payroll (STP) has become stricter, and penalties for failing to submit on time can quickly add up. The penalties aren’t just a one-off fine; if businesses repeatedly fail to meet deadlines or report incorrectly, they could find themselves under greater scrutiny.

For businesses, the fines vary depending on size, and missing a deadline could mean a financial penalty, plus the administrative burden of correcting any errors or omissions in the reporting. Here’s a breakdown of how fines work:

• Small Businesses (Under $10 Million Turnover or 19 or Fewer Employees): If your business qualifies as a small business, the fine for each missed STP report can start at $210 per 28-day period that the report is overdue, up to a maximum of $1,050 per missed report. It might not seem like much at first, but if you miss multiple deadlines, these fines can add up quickly.
• Medium-Sized Businesses: For businesses that have a larger turnover or more employees, fines can climb to $2,100 per missed report. That’s a lot more substantial, especially for businesses with multiple employees.
• Large Entities: For large entities, penalties can go up to $5,250 per missed report. I’ve worked with large firms, and even though they have the resources to implement robust payroll systems, they still sometimes miss deadlines. For large businesses, these fines become a major cost that can impact the bottom line.
• Significant Global Entities: For businesses classified as significant global entities, the penalties can soar to $525,000 for repeated non-compliance. The ATO takes a strict approach with multinational corporations, and if they repeatedly miss deadlines or submit inaccurate data, they face serious financial consequences.

These fines are not tax-deductible, so they come out of your business’s profits. That means missing deadlines doesn’t just affect your compliance—it impacts your business’s financial health.

Common STP Challenges and How to Overcome Them

One of the most common challenges businesses face with STP compliance is using outdated payroll software that isn’t up to speed with the latest ATO reporting requirements. I’ve seen this happen multiple times, and it’s always a bit of a nightmare for business owners. Imagine this: you’ve processed your payroll, clicked ‘submit’, and everything seems fine. Then, you get a notification from the ATO saying your report was rejected because your software isn’t compatible with STP Phase 2.

This was the case for a business I worked with last year. They had been using an older version of their payroll software that was no longer compatible with the ATO’s updated reporting requirements. When the ATO rejected their submissions, the business was faced with the task of correcting everything, which involved upgrading their software and retraining the payroll staff.

Data Accuracy and Employee Classification Problems

Another challenge businesses often face is data accuracy. It’s easy to make simple errors in the payroll process—misclassifying employees, reporting incorrect tax file numbers (TFNs), or even missing important details like superannuation contributions or overtime payments. These errors can lead to rejected STP submissions and require businesses to resubmit the data.

Take, for instance, a client in Sydney who ran into issues because some of their casual employees were mistakenly classified as part-time employees in the system. This small mistake led to delays in STP reporting, and when the ATO flagged the inconsistency, they had to go back and fix each individual employee’s classification.

Lack of Staff Training

Speaking of staff training, this is a challenge that many small businesses overlook. Payroll compliance, especially with the introduction of STP Phase 2, involves understanding a variety of detailed requirements, from reporting allowances and overtime to categorising types of income and accurately reporting employment conditions. Without adequate training, it’s easy for payroll staff to miss key reporting details.

A good example is a business in Melbourne that faced repeated issues with incorrect overtime calculations. The payroll team wasn’t fully trained on how to report overtime payments correctly, which led to inaccurate STP submissions. This caused a bit of a headache when they were audited, and they had to go back through multiple pay periods to fix the errors.

Complex Employment Arrangements

Another hurdle many businesses encounter is dealing with complex employment arrangements, such as casual workers, family members on payroll, or employees working overseas. These arrangements often require special attention when reporting through STP, and getting them wrong can lead to errors in reporting or even non-compliance.

One example I can share comes from a family-owned business in Brisbane that employed family members as directors. For these closely held payees, they initially had trouble navigating the reporting process. Under STP Phase 2, they had to ensure that the income for directors and family members was reported separately from that of the standard employees. This extra layer of reporting added complexity, but with the right guidance, they were able to resolve the 

Technical Issues and Glitches with STP Reporting

It’s not all about data entry errors and software training—sometimes the issue can simply be technical. Some businesses face technical glitches when submitting their STP reports, especially if their software doesn’t sync properly with the ATO’s systems. These issues can delay submissions and sometimes cause data mismatches that require manual corrections.

For example, I once helped a business in Adelaide that faced repeated issues with their STP-enabled payroll software failing to connect with the ATO’s system. After some troubleshooting, they discovered that an outdated version of the software was causing the connection errors. This prevented them from reporting on time and caused a delay in their employees’ tax return submissions.

STP Exemptions, Deferrals, and Concessions

While most businesses are required to comply with STP, there are some exemptions and concessions available, particularly for small businesses facing unique challenges. Understanding when you qualify for exemptions can save you time and prevent you from scrambling to meet unnecessary reporting requirements.

For instance, businesses that don’t have any PAYG withholding obligations may not be required to report through STP. Similarly, if a business has very limited digital access (e.g., unreliable internet), it may qualify for a temporary deferral to give them more time to comply.

Key Deadlines for FY2025 and Future Changes

As we move into FY2025, there are some important deadlines and regulatory changes you’ll need to be aware of, especially in regard to superannuation guarantee rates.

From July 1, 2025, the superannuation guarantee rate will increase to 12%. If you’re managing payroll, this change is a significant one, and it’s essential to prepare for it well in advance. It means that as an employer, you’ll need to ensure that your payroll software reflects the higher rate and that you’re contributing the correct amount to your employees’ superannuation accounts.

I’ve worked with several businesses in Melbourne and Sydney that had to revise their payroll systems ahead of previous superannuation increases. Many found it a bit overwhelming at first, but with the right planning and software updates, they were able to handle the change without a hitch.

Payday Super and the Transition to Real-Time Super Payments

Another significant shift in payroll management is the move to Payday Super. From July 1, 2026, employers will be required to pay superannuation contributions on the same day as wages, rather than waiting until the end of the quarter. This change will have a major impact on businesses and how they manage their payroll, especially for those who have become accustomed to quarterly superannuation payments.

This change will require employers to pay super on a per-pay-run basis, which means employers will need to adjust their payroll systems to accommodate more frequent super payments. For businesses like construction companies, hospitality venues, or anyone with employees on regular weekly pay cycles, this shift will be crucial.

STP Finalisation for FY2025

One of the most important deadlines businesses need to be aware of for FY2025 is the finalisation of STP reports. The ATO requires that the last payroll run of the financial year be reported as finalised by July 14, 2025, for most employers. If you’re a closely held payee, such as a family member or company director, your finalisation deadline is September 30, 2025.

What does “finalisation” mean? Simply put, it means you’re notifying the ATO that you’ve finished processing your payroll for the financial year, and your employees’ income statements are now tax-ready. This is important because it enables the ATO to generate the information employees need to file their tax returns.

I’ve seen businesses delay finalisation in the past, only to face unnecessary stress when tax season arrives. The earlier you get this done, the smoother the transition to the new financial year will be.

How Payroll Software Can Help with STP Compliance

At this point, you might be asking, “What’s the best way to make sure my business stays on top of all these changes?” The answer, for many businesses, is to use STP-enabled payroll software. These systems are specifically designed to handle all the complexities of STP reporting and ensure that your business stays compliant with the ATO’s requirements.

Over the years, I’ve helped businesses of all sizes transition to STP-compliant payroll systems, and the right software can make all the difference. There are a number of great options out there, so let’s look at some of the top contenders:

• Xero: This is one of the most widely used payroll systems in Australia, particularly among small to medium-sized businesses. Xero makes the transition to STP seamless, and it integrates well with other accounting and financial tools. It also offers excellent customer support, which can be a lifesaver when you’re navigating new compliance rules.
• MYOB: Another popular choice for Australian businesses, MYOB’s payroll module is STP-compliant and is particularly good for those who also need a complete accounting solution. The downside is that it’s not as user-friendly as some other systems, and I’ve had clients express frustration with how hard it can be to navigate. Still, with the right training, it’s a solid tool.
• KeyPay: If your business is a bit more complex and requires additional features like rostering, time and attendance, or employee self-service portals, KeyPay is a great option. It’s highly configurable, and many businesses love how it integrates with other apps like Xero.

How to Choose the Right Payroll Software for Your Business:

1. Consider the Size of Your Business: For small businesses, software like Easy Payslip or Reckon One may suffice. Larger businesses with more complex payroll needs may need a more robust solution like Xero or KeyPay.
2. Integration with Other Systems: If you’re already using accounting software, look for payroll software that integrates with your current system. This will save you time and reduce the risk of errors.
3. Support and Training: Ensure that your chosen software comes with solid customer support and training resources. There’s a steep learning curve for STP Phase 2, and you’ll need ongoing support to stay compliant.