How single touch payroll works
Under STP Phase 2, an employer's payroll software sends the ATO a report each pay run showing gross pay, PAYG withholding, allowances, deductions and superannuation liability for each employee individually, broken down by category. This gives the ATO close to real-time visibility of payroll obligations instead of waiting for an annual payment summary to be lodged separately after the financial year closes.
Because STP reporting happens every single pay run, payroll needs to be set up correctly from the very start, income types, allowance categories and employment basis all need to match ATO categories exactly and consistently. Errors reported through STP can be harder to unwind than they would be under an annual reporting cycle, since incorrect data has already reached the ATO's own systems.
Example
A hospitality business runs weekly payroll for fifteen staff across its kitchen and floor teams. Each week, once the pay run is finalised, its payroll software automatically sends an STP report to the ATO showing each employee's gross pay, PAYG tax withheld and superannuation guarantee accrued for that specific week. The ATO's record of each employee's year-to-date figures updates immediately, rather than waiting for a payment summary at year end as under the old system.
Single Touch Payroll in QuickBooks Online vs Xero
QuickBooks Online Payroll is STP Phase 2 compliant and reports each pay run to the ATO automatically as part of finalising payroll, with no separate step needed. Xero Payroll also reports through STP Phase 2, mapping pay items to the correct ATO income and allowance categories before each submission goes through to the ATO.
Common mistakes
- Pay items are mapped to the wrong ATO income or allowance category at setup, so every STP report sent afterward carries the same misclassification.
- A business treats STP reporting as an annual task rather than a per pay run obligation, missing the requirement to report each time payroll is processed.
- Incorrect figures are submitted through STP and not corrected promptly, leaving inaccurate year-to-date totals sitting in the ATO's own systems for longer than necessary.
Why it matters
Single Touch Payroll reports wages, tax and superannuation to the ATO close to real time, so errors reach government systems immediately rather than waiting to be caught at year end. For an Australian employer, incorrect STP categories or missed reports can be harder to correct than an old annual filing once the ATO already has the data. Accurate setup and consistent reporting keep payroll compliant every pay run.
Related terms
How LedgerBPO handles single touch payroll
We set up payroll categories correctly against STP Phase 2 requirements and reconcile each pay run's report against payroll records, so wages, PAYG withholding and superannuation reported to the ATO stay accurate every single period without exception.