Introduction to Single Touch Payroll (STP) – Phase 2

So what is Phase 2 single touch payroll? As an employer, you may have recently received notification from the ATO regarding the need to report extra information. Shortly, you will need to start reporting additional information on or before each pay day. This is known as STP Phase 2! So what are the STP changes?

What is STP – Phase 2?

Most Australian employers are familiar with Single Touch Payroll.

STP Phase 2 is the next stop on this journey.

Single Touch Payroll (STP) Phase 1 was a way of reporting employees’ tax and super to the ATO.

STP Phase 2 expands this initial program to capture more detailed information.

Objective – this will reduce the compliance burden for employers and individuals and help the admin side of things for Services Australia.

Although you will need to provide the ATO with more information, the way you submit STP reports won’t change; how much it differs from your current process will depend on the nuances of your unique business and employees.



The mandatory start date for STP Phase 2 reporting was the 1 January 2022.

However, the ATO’s approach to STP Phase 2 will be flexible, reasonable, and pragmatic based on your business readiness and individual circumstances.

Some Digital Service Providers (DSPs) needed more time to update their products and transition their customers. If your DSP has a deferral, this covers you.

If you can start reporting by your DSP’s deferral date, you don’t need to apply for more time.


When will the changes be rolled out in Xero?

As many of our clients use Xero software, we can now advise you of the following:

  • Xero have secured a deferral for all Xero Payroll users until 31 December 2022, and they are working closely with the ATO to rollout the Phase 2 changes, and
  • To help you adjust to the shift and ensure a smooth transition within Xero ahead of the compliance date, they’ll be rolling these out in three stages over the 2022 calendar year.

When will each stage begin?

  • Stage one: The first stage will start being available within Xero from mid-April onwards. This will include updates to the way new employee records are set up in payroll, ensuring STP Phase 2 compliance, and
  • Stage two: The second stage will begin rolling out within Xero approximately mid-year. This will extend the set-up process to enable the transition of existing employee payroll records to STP Phase 2 compliance. This will provide ample time for you to ensure all employees in your business are correctly set up for STP2 Phase 2 compliance, and
  • Stage three: The final stage will be available in the second half of this year. It will see the new pay items from STP 2 finalised in Xero, with product support to review existing pay items that may need to be changed to those stipulated by STP Phase 2.

Meanwhile, many of these new pay items are already available in Xero Payroll and will continue to be released over the coming months so you can start to use them ahead of the compliance date.

Xero will continue to let you know as this progress and make sure you have the information you need to transition as seamlessly as possible.


What updates Xero have already made?

You may have seen some new additions within Xero software already. Xero been working on items to help you become STP Phase 2 compliant. While these are not mandatory yet, they’re available now for you to start getting ready ahead of the transition.

This includes new payment types that help capture the more detailed payroll information needed for STP Phase 2. The new payment types are as follows:

  • Bonuses and commissions: Previously they were reported as part of gross payments, but for STP Phase 2 will be reported separately,
  • Lump sum W (return to work) payments: A return to work amount is paid to induce an employee to resume work – previously this was reported as a gross sum,
  • Lump sum E payments: This is used when you make lump sum payments for back pay from prior income years and is now done via STP instead of a letter,
  • Director’s fees: If you pay directors’ fees, you must separately include these in your STP Phase 2 report,
  • New allowance types: Under STP Phase 2 reporting, allowances for task, tools or qualifications need to be reported under new labels.

When it comes to inputting employee information, you are now also able to add a termination reason when one of your team wraps up with the business. This gets rid of the need for an employment separation certificate to be issued.


Do I need to do anything right now?

Just take some time to get familiar with the new pay items and other additions that are available within Xero now. Xero will continue to let you know as changes are rolled out and make sure you have everything you need to get STP Phase 2 ready. 

How can I find more information?

If you’d like to find out more about what STP Phase 2 will look like in Xero, you can  take a look at this handy Xero guide to STP Phase 2, visit Xero Central, or refer to the ATO’s employer reporting guidelines

The ATO has also provided more information – you can access these resources at

Speak to our advisors if you need anything further.