STP Phase 2 for small employers: what you report and why

Single Touch Payroll means your payroll software tells the ATO about each pay run at the time you run it, rather than you filing a summary once a year. Phase 2 did not change when you report. It changed how much detail goes in the report.

If you employ one to five people, the practical effect is that your payroll setup has to be more precise than it used to be. Phase 2 punishes vague pay item configuration, because a lump labelled "wages" now has to be resolved into its parts.

Disaggregation of gross: the main change

Under Phase 1 you reported one gross figure per employee. Under Phase 2 that figure is broken into its components, and each component is reported separately on every pay event where it occurs. The components include:

• Gross salary and wages
• Paid leave
• Overtime
• Bonuses and commissions
• Directors' fees
• Return-to-work payments
• Salary sacrifice amounts
• Allowances, itemised by type

The reason for the detail is not tax. It is that the ATO shares this data with Services Australia, the Department of Social Services and the Department of Veterans' Affairs, and those agencies treat the components differently. Overtime and paid leave affect an income-support assessment differently from base wages, so they can no longer be reported as one number.

Employment basis

Each employee now carries an employment basis in the STP report — full-time, part-time, casual, and the other categories the ATO defines, including labour hire and non-employee arrangements. This used to be information you held in your own records and nobody else's.

It matters more than it looks, because the basis you report should agree with how you are actually treating the person: their leave accrual, their loading, their super. A casual reported as full-time is a discrepancy waiting to be noticed.

For reference, the National Employment Standards give full-time employees 4 weeks of paid annual leave a year — 152 hours for a 38-hour week — and 10 days of paid personal/carer's leave a year, which accrues progressively and is a single balance covering both sick leave and carer's leave. Casuals do not accrue either.

Cessation reason

When someone leaves, Phase 2 requires you to report a cessation date and a cessation reason code — resignation, redundancy, dismissal, contract end, and so on. Getting the code right matters because it flows into the former employee's dealings with Services Australia.

The upside is that Phase 2 largely removed the need for a separate employment separation certificate, because the reason is already in the STP data.

End-of-year finalisation

STP replaced payment summaries. Instead of giving employees a form, you make a finalisation declaration confirming the year's reported data is complete and correct. That marks each employee's income statement as Tax ready in myGov, and employees should wait for that status before lodging their own return.

If you have both, you still have to finalise your arm's length employees by 14 July — the later date applies only to the closely held payees. If you genuinely cannot finalise by the due date, you need to apply to the ATO for a deferral rather than simply lodging late.

If you are a very small employer

There is no small-employer exemption from Phase 2. Employers with four or fewer employees, and businesses paying only closely held payees, have had concessions about *how* and *how often* they report in the past, but the Phase 2 data set itself is not optional.

What *is* true is that the smaller you are, the more of the Phase 2 burden is one-off. Map your pay items once, set each employee's basis once, and the ongoing work is running payroll as normal.