STP Phase 2: what changed and how to keep clients compliant
A practical look at Single Touch Payroll Phase 2, the extra detail it requires, and how to keep bookkeeping clients reporting correctly each pay run.
Single Touch Payroll changed the way employers report wages, tax, and super, moving from an annual summary to a report with every pay run. Phase 2 extended what has to be reported, adding detail that payroll software now needs to capture correctly. For practices with bookkeeping and payroll clients, the job is making sure each client's payroll is set up so that every pay event reports the right information.
What Phase 2 added
The headline change in Phase 2 is disaggregation of gross pay. Instead of reporting a single gross figure, employers now break income down into components such as ordinary time earnings, overtime, allowances, bonuses, and paid leave. Phase 2 also captures employment and income type information, and streamlines the reporting of tax treatment and details previously provided separately.
The full scope of the Phase 2 reporting requirements is set out by the ATO, and much of the work sits in configuring payroll categories correctly rather than in the reporting itself.
Why setup is where errors happen
Because Phase 2 depends on classifying pay components correctly, most problems trace back to how the payroll is configured. An allowance mapped to the wrong type, or leave not broken out as required, produces reporting errors that repeat every pay run until they are fixed. Getting the payroll categories right once prevents a long tail of small mistakes.
- Allowances: mapped to the correct allowance types.
- Leave: reported under the right paid leave categories.
- Income types: set correctly for each employee.
- Tax treatment: reflected accurately in the payroll settings.
A checklist for each payroll client
The most reliable way to keep clients compliant is a standard payroll setup review. Work through each client's pay categories, confirm they are mapped correctly for Phase 2, check that new employees are set up with the right income type, and confirm that any new allowances added during the year have been classified properly. Doing this as a documented step means it does not depend on one person's memory of how a client was configured.
Track payroll obligations as recurring work
Payroll compliance is ongoing rather than annual. In Finye you can attach a payroll review step to recurring bookkeeping jobs, so pay category setup is checked periodically rather than only when something breaks. You can also track the payroll year-end finalisation as a recurring job with the right due date, so it is never left to the last week. Firms structure this kind of recurring payroll work using the patterns in Finye's guides.
Correcting reporting errors
When a Phase 2 misclassification is discovered, it usually needs to be corrected rather than simply fixed going forward, because the incorrect figures have already been reported to the ATO. The practical approach is to fix the payroll setup so future pay events report correctly, then work through what the software requires to adjust the earlier reporting. Catching setup errors early, ideally at the first pay run after a change, keeps these corrections small rather than letting them accumulate across a whole year.
Year-end finalisation still matters
Even with reporting happening every pay run, employers still need to make an end-of-year finalisation declaration so employees' income statements are marked as tax-ready. Missing this leaves clients' employees unable to lodge cleanly, so it deserves a firm place on the compliance calendar. STP Phase 2 is less about the reporting mechanics and more about disciplined payroll setup. Get the categories right, review them regularly, and keep the year-end finalisation on the calendar, and clients stay compliant with very little drama.