Published: July 2025

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Introduction

Single Touch Payroll (STP) has fundamentally transformed how Australian businesses report payroll information to the Australian Taxation Office (ATO). Since its mandatory implementation, this digital reporting system has streamlined tax and superannuation reporting whilst creating new compliance obligations for business owners.

For small and medium enterprises across Australia, understanding and correctly implementing STP isn't just about avoiding penalties—it's about leveraging technology to improve payroll efficiency and maintain accurate employee records. However, the complexity of STP requirements often overwhelms business owners who are juggling multiple responsibilities.

This comprehensive guide will equip you with everything you need to know about Single Touch Payroll, from basic compliance requirements to advanced strategies for maximising its benefits. Whether you're a new business owner setting up payroll for the first time or an experienced operator looking to optimise your current STP processes, this guide provides practical insights tailored specifically for Australian SMEs.

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What Is Single Touch Payroll (STP)?

Single Touch Payroll is a government initiative that requires employers to report payroll information to the ATO digitally each time they pay their employees. Instead of providing annual payment summaries and lodging quarterly or annual reports, businesses now send payroll data directly from their payroll software to the ATO in real-time.

The system captures essential employee information including wages, tax withholding, superannuation contributions, and other relevant employment details. This data is then used by the ATO to pre-fill employee tax returns and monitor compliance with tax and superannuation obligations.

Key Components of STP Reporting

STP reporting encompasses several critical data elements:

• Employee Information: Names, tax file numbers, addresses, and employment details
• Payment Information: Gross wages, allowances, bonuses, and other payments
• Tax Withholding: PAYG tax withheld from employee payments
• Superannuation: Contributions made and accrued for each employee
• Employment Details: Start and end dates, employment basis, and working arrangements

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Who Must Use Single Touch Payroll?

STP obligations apply to virtually all Australian employers, though implementation timelines and requirements vary based on business size and circumstances.

Mandatory STP Requirements

Large Businesses (20+ Employees)

• Mandatory since 1 July 2018
• Must report through STP-enabled payroll software
• No exemptions available

Small Businesses (1-19 Employees)

• Mandatory since 1 July 2019
• Multiple reporting options available
• Limited exemptions for specific circumstances

Micro Employers (1-4 Employees)

• Can use STP or quarterly reporting until 31 December 2025
• Transitional arrangements provide flexibility
• Simplified reporting options available

Exemptions and Special Circumstances

Certain employers may qualify for exemptions or alternative reporting arrangements:

• Religious practitioners paid by religious institutions
• Employers in remote locations without reliable internet access
• Seasonal workers in specific agricultural industries
• Insolvency situations may warrant temporary relief

*Quarterly reporting for micro employers ends 31 December 2025

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How Single Touch Payroll Works

Understanding STP's operational mechanics helps business owners implement and manage the system effectively.

The Reporting Process

1. Payroll Processing: Calculate employee wages, tax, and superannuation using STP-enabled software
2. Data Validation: Software validates information against ATO requirements
3. Real-Time Submission: Payroll data transmits to ATO when pay run is finalised
4. ATO Processing: ATO receives and processes data for compliance monitoring
5. Employee Access: Employees can view their information through myGov

Data Transmission Security

STP uses robust security protocols to protect sensitive employee information:

• 256-bit SSL encryption for data transmission
• Digital certificates for software authentication
• Audit trails tracking all data submissions
• Access controls limiting who can view employee information

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Setting Up Single Touch Payroll

Successful STP implementation requires careful planning and systematic execution.

Choosing STP-Enabled Software

Select payroll software that meets your business needs and ATO requirements.

Cloud-Based Solutions

• Automatic updates ensure ongoing compliance
• Access from anywhere with internet connection
• Typically subscription-based pricing
• Suitable for businesses with remote workers

Desktop Software

• One-time purchase with periodic updates
• Data stored locally on business computers
• May require manual updates for compliance changes
• Suitable for businesses preferring local data storage

Popular STP Software Options Include:

• Xero Payroll
• MYOB PayGlobal
• QuickBooks Payroll
• Sage Micropay
• KeyPay
• Employment Hero

If in doubt, speak to an HR specialist to speak through your specific business requirements.

Employee Information Requirements

Gather essential employee information before STP implementation:

Personal Details

• Full legal name (as per tax records)
• Tax File Number (TFN)
• Current residential address
• Date of birth

Employment Information

• Employment start date
• Employment type (casual, part-time, full-time)
• Salary or wage rates
• Superannuation fund details
• Tax declaration information

Historical Data Migration

• Previous year-to-date payment information
• Outstanding superannuation obligations
• Existing leave balances
• Prior PAYG withholding amounts

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STP Reporting Requirements and Deadlines

Understanding reporting obligations ensures consistent compliance and avoids penalties.

Regular Reporting Obligations

Pay Event Reporting

• Report on or before the day employees are paid
• Include all payment types: wages, allowances, bonuses
• Report even if no payments made during period

Superannuation Reporting

• Report contributions when made, not when accrued
• Include both employer and salary sacrifice contributions
• Quarterly superannuation guarantee compliance required

Year-End Finalisation

• Annual declaration confirming payroll information accuracy
• Due 31 July (or earlier if business ceases operation)
• Triggers creation of employee income statements

Reporting Frequency Options

Real-Time Reporting (Recommended)

• Submit payroll information each pay run
• Provides most current employee information
• Reduces year-end finalisation complexity

Monthly Reporting (Limited Circumstances)

• Available for employers under 20 employees
• Must meet specific ATO criteria
• Requires formal approval from ATO

Quarterly Reporting (Micro Employers Only)

• Available for businesses with 1-4 employees
• Temporary arrangement until 31 December 2025
• Simplified reporting requirements

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Understanding STP Data Elements

Accurate STP reporting requires understanding what information to include and how to categorise it correctly.

Payment Types and Classification

Ordinary Time Earnings

• Regular wages and salaries
• Ordinary hours for hourly employees
• Annual leave payments
• Long service leave (if ordinary pay rates)

Allowances

• Travel allowances
• Meal allowances
• Tool allowances
• Clothing allowances
• Car allowances

Overtime and Penalty Rates

• Weekend penalty rates
• Public holiday loadings
• Overtime hours
• Shift allowances

Other Payments

• Bonuses and commissions
• Directors' fees
• Redundancy payments
• Employment termination payments

Tax Withholding Classifications

STP captures various tax withholding scenarios:

PAYG Withholding

• Standard tax withholding from wages
• Tax on bonuses and commissions
• Tax on allowances (where applicable)
• Working holiday maker tax rates

Medicare Levy Exemptions

• Employees with valid exemption certificates
• Requires accurate classification in STP reporting

Higher Education Loan Program (HELP)

• Automatic HELP debt deductions
• Income threshold monitoring
• Correct rate application

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Superannuation and STP Compliance

STP reporting includes comprehensive superannuation information, creating new compliance monitoring capabilities for the ATO.

Superannuation Guarantee Obligations

Quarterly Reporting Requirements

• Report actual contributions made each quarter
• Include contribution dates and amounts
• Identify employer and employee contributions separately

Contribution Base Calculation

• Include all ordinary time earnings
• Add overtime payments
• Include most allowances and bonuses
• Exclude certain payments like genuine redundancy

Choice of Fund Compliance

• Report employee fund choices accurately
• Update fund details when employees change funds
• Maintain compliant default fund arrangements

Managing Superannuation Through STP

Real-Time Monitoring

• ATO can identify unpaid superannuation immediately
• Quarterly statements automatically generated
• Employee access to contribution information through myGov

Contribution Payment Timing

• Contributions must be paid by quarterly due dates
• STP reporting doesn't extend payment deadlines
• Late payment penalties still apply

Fund Communication

• Many super funds now receive contribution information through STP
• Reduces administrative burden for fund reporting
• Improves accuracy of member account updates

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Employee Management and STP

Effective employee management within STP requires understanding how various employment scenarios affect reporting obligations.

New Employee Onboarding

Information Collection

• Obtain completed Tax File Number Declaration
• Collect superannuation choice forms
• Verify identity documents
• Gather emergency contact information

System Setup

• Create employee records in payroll software
• Assign appropriate tax codes and rates
• Configure superannuation arrangements
• Set up leave entitlements and accruals

First Pay Run Considerations

• Ensure all required information is complete
• Verify tax calculations are correct
• Confirm superannuation fund details are accurate
• Test STP submission before finalising

Managing Employee Changes

Personal Detail Updates

• Address changes require prompt updating
• Bank account modifications need careful handling
• Name changes require supporting documentation
• TFN corrections need ATO verification

Employment Condition Changes

• Salary adjustments affect tax calculations
• Hour variations impact superannuation obligations
• Leave arrangement modifications require system updates
• Superannuation fund changes need immediate attention

Employment Termination Process

• Process final payments through STP
• Report employment end dates accurately
• Handle final superannuation contributions
• Provide required termination documentation

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STP Penalties and Compliance Issues

Understanding potential penalties helps businesses prioritise compliance and implement appropriate risk management strategies.

Common Penalty Scenarios

Late or Missing Reports

• $220 per 28-day period for small businesses
• $1,100 per 28-day period for larger businesses
• Penalties compound for ongoing non-compliance
• Maximum penalties can reach $55,000

Incorrect Information

• Administrative penalties for false or misleading information
• Potential prosecution for deliberate non-compliance
• Director penalty notice provisions may apply
• Superannuation guarantee charge for unpaid contributions

System Failures

• Reasonable care defence available for genuine technical issues
• Must demonstrate attempts to comply despite system problems
• Temporary alternative arrangements may be available
• Documentation of issues required for penalty relief

Penalty Mitigation Strategies

Voluntary Disclosure

• Proactively report errors to ATO
• Often reduces penalty amounts significantly
• Demonstrates good faith compliance efforts
• May prevent more serious enforcement action

Reasonable Care Defence

• Document compliance procedures and training
• Maintain records of system maintenance and updates
• Show evidence of professional advice where relevant
• Demonstrate prompt action to rectify identified issues

Small Business Concessions

• Reduced penalty amounts for qualifying small businesses
• Extended time frames for rectification in some circumstances
• Access to ATO small business support services
• Potential for penalty remission in hardship situations

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Technology and Integration Considerations

Successful STP implementation often involves integrating payroll systems with other business technologies and processes.

Software Integration Options

Accounting System Integration

• Seamless data flow between payroll and accounting
• Automated journal entries for payroll expenses
• Consistent chart of accounts mapping
• Simplified financial reporting and analysis

Time and Attendance Systems

• Automatic import of worked hours
• Reduced manual data entry errors
• Real-time overtime calculations
• Improved labour cost tracking

Human Resources Management

• Centralised employee information management
• Automated workflows for employee changes
• Consistent reporting across HR and payroll
• Enhanced compliance monitoring capabilities

Data Backup and Security

Regular Backup Procedures

• Automated daily backups of payroll data
• Secure off-site storage arrangements
• Regular backup restoration testing
• Clear recovery procedures documentation

Access Control Management

• Role-based access to sensitive payroll information
• Regular review of user access permissions
• Strong password and authentication requirements
• Audit trails for all system access and changes

Cybersecurity Considerations

• Regular software updates and security patches
• Firewall and antivirus protection
• Employee training on cybersecurity best practices
• Incident response procedures for security breaches

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Troubleshooting Common STP Issues

Business owners frequently encounter specific challenges when implementing and managing STP systems.

Technical Issues and Solutions

Submission Errors

• Validate employee TFN formats and accuracy
• Check for duplicate employee records
• Verify superannuation fund ABN details
• Ensure all mandatory fields are completed

Software Connectivity Problems

• Test internet connectivity and firewall settings
• Update software to latest versions
• Check ATO system status for outages
• Contact software provider technical support

Data Synchronisation Issues

• Reconcile STP reports with internal payroll records
• Identify and correct any discrepancies promptly
• Implement regular data validation procedures
• Maintain comprehensive audit trails

Employee Communication Challenges

Privacy Concerns

• Explain ATO access to STP information
• Clarify employee rights regarding their data
• Outline data security measures in place
• Provide clear privacy policy documentation

Information Accuracy

• Establish procedures for employees to report errors
• Implement regular review cycles for employee information
• Train employees on their responsibilities for accurate information
• Document all corrections and changes made

System Changes Communication

• Notify employees of payroll system changes
• Provide training on new procedures where relevant
• Establish clear communication channels for questions
• Document all procedural changes and training provided

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Maximising STP Benefits for Your Business

Beyond basic compliance, STP offers opportunities to improve business operations and decision-making processes.

Enhanced Reporting and Analytics

Real-Time Payroll Insights

• Monitor labour costs throughout pay periods
• Identify trends in overtime and allowance payments
• Track superannuation contribution patterns
• Analyse employee cost centres and departments

Compliance Monitoring

• Automatic alerts for potential compliance issues
• Regular reconciliation reports for accuracy verification
• Trending analysis for error reduction
• Benchmarking against industry standards

Strategic Decision Support

• Labour cost analysis for budgeting and forecasting
• Productivity metrics and performance indicators
• Workforce planning and resource allocation
• Financial reporting integration for management accounts

Process Improvement Opportunities

Automated Workflows

• Streamlined new employee onboarding processes
• Automatic calculation of leave entitlements and accruals
• Systematic handling of employment condition changes
• Efficient termination and final payment procedures

Error Reduction Initiatives

• Implement data validation rules to prevent common mistakes
• Regular training programs for payroll staff
• Systematic review processes for accuracy verification
• Documentation of standard operating procedures

Cost Management Benefits

• Reduced administrative time through automation
• Lower compliance costs through efficient processes
• Decreased penalty risks through improved accuracy
• Better resource allocation through enhanced reporting

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Future of Single Touch Payroll

The STP system continues to evolve with new features and capabilities being developed to further streamline payroll processing and compliance.

Upcoming Enhancements

Phase 2 Implementation

• Additional data elements including income support payments
• Enhanced reporting for employment conditions and arrangements
• Improved integration with other government systems
• Expanded functionality for complex employment scenarios

Digital Services Integration

• Seamless connection with myGov and ATO online services
• Automated prefilling of employee tax returns
• Real-time access to employment information for government services
• Enhanced data sharing between agencies

Technology Developments

Artificial Intelligence Integration

• Automated error detection and correction suggestions
• Predictive analytics for compliance monitoring
• Intelligent data validation and verification
• Enhanced fraud detection capabilities

Mobile and Cloud Enhancements

• Improved mobile accessibility for payroll processing
• Enhanced cloud security and performance
• Better integration with mobile workforce management
• Streamlined remote payroll administration

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Best Practices for Long-Term STP Success

Establishing robust STP processes ensures ongoing compliance and maximises system benefits.

Governance and Documentation

Policy Development

• Create comprehensive payroll processing procedures
• Document error correction and amendment processes
• Establish clear roles and responsibilities
• Implement regular review and update cycles

Training and Development

• Provide ongoing training for payroll staff
• Stay current with ATO updates and changes
• Participate in professional development opportunities
• Maintain certification and accreditation where relevant

Quality Assurance

• Implement systematic quality control procedures
• Regular reconciliation and validation processes
• Independent review of payroll calculations
• Continuous improvement initiatives

Stakeholder Management

Employee Relations

• Maintain open communication about payroll changes
• Provide clear information about STP and employee rights
• Establish efficient query resolution processes
• Regular feedback collection and improvement implementation

Professional Support Network

• Maintain relationships with qualified tax professionals
• Engage payroll software support when needed
• Participate in relevant industry associations
• Stay connected with compliance and regulatory updates

ATO Relationship Management

• Proactive communication about compliance issues
• Prompt response to ATO queries and requests
• Voluntary disclosure of identified errors
• Collaborative approach to resolving compliance matters

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Frequently Asked Questions

What happens if I miss an STP reporting deadline?

If you miss an STP reporting deadline, you may face penalties ranging from $220 to $1,100 per 28-day period depending on your business size. Contact the ATO immediately to explain the circumstances and discuss penalty relief options. The ATO may waive penalties if you can demonstrate reasonable care or if technical issues prevented timely reporting.

Can I use different payroll software for different employees?

While technically possible, using multiple payroll systems for STP reporting creates complexity and increases error risks. The ATO recommends using a single, integrated system for all employees to ensure consistency and simplify compliance management.

How do I handle employees who don't want to provide their TFN?

Employees can choose not to provide their TFN, but this results in higher tax withholding rates (45% plus Medicare levy). You must still report these employees through STP, using "000000000" as the TFN and applying the appropriate tax rates.

What if my payroll software stops supporting STP?

If your software provider discontinues STP support, you must transition to compliant software before your next pay run. The ATO maintains a list of approved STP software solutions. Contact the ATO if you need temporary alternative reporting arrangements during the transition.

Can I backdate STP reports if I discover errors?

Yes, you can submit amended STP reports to correct errors from previous periods. However, you should correct errors as soon as they're discovered to minimise potential penalties and ensure employee records are accurate for tax return purposes.

How does STP affect my superannuation guarantee obligations?

STP doesn't change your superannuation guarantee obligations – you must still pay superannuation by quarterly due dates. However, STP provides the ATO with real-time visibility of your superannuation reporting, making it easier to identify and address unpaid contributions.

What records do I need to keep for STP compliance?

Maintain all payroll records, employee information, STP submission confirmations, and error correction documentation. Keep records for five years from the date of submission or until any related disputes are resolved, whichever is longer.

Can I report STP manually without payroll software?

Small businesses may be eligible for alternative reporting methods in limited circumstances, such as significant hardship or technical barriers. However, the ATO strongly encourages all businesses to use STP-enabled payroll software for accuracy and efficiency.

How do I handle employees working across multiple entities?

Each employing entity must report separately through STP, even if employees work for related companies. Ensure each entity has appropriate payroll systems and reporting arrangements to avoid compliance issues.

What happens to STP data when employees leave?

Employee STP data remains with the ATO permanently as part of their employment history. When employees leave, ensure you report their final payments and employment end date accurately, as this information affects their tax return and future employment records.

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Sydney Bookkeeper Services

Sydney Bookkeeper offers bookkeeping services for Australian SMBs, including payroll management that supports Single Touch Payroll (STP) compliance through payroll calculations, employee onboarding, payslip distribution, and PAYG assistance. Our services also cover ATO compliance with BAS and IAS preparation, GST mapping, and year-end audit support to meet tax and superannuation reporting requirements.

Additional offerings include financial reporting such as profit and loss reviews, balance sheet analysis, monthly cash flow reviews, and margin analysis, along with accounts receivable and payable management for handling invoices and payments. We provide Xero setup, migration, and training to integrate with cloud-based systems. Services can be fully or partially managed, with options for weekly or monthly reconciliations and catch-up for backlogged records, available without lock-in contracts on a pay-for-what-you-use basis. An onboarding process starts with a free assessment and customised proposal. For more details, visit our website at www.sydneybookkeeper.com.