Published: February 2026
Single Touch Payroll Phase 2 is now the permanent reporting standard for all Australian employers. There are no further extensions or transition deferrals. Every pay run must include detailed income classification, tax treatment codes, and disaggregated payment information that is reported directly to the ATO in real time.
Getting STP reporting wrong has direct consequences for your employees and your business. Incorrect reporting means employees' income statements in myGov are inaccurate, which can affect their tax returns, Centrelink entitlements, Family Tax Benefit assessments, and child support calculations. For employers, reporting errors trigger ATO "Action Required" notifications, potential penalties, and in serious cases, audits.
From 1 July 2026, STP becomes even more critical because it will be the primary reporting mechanism for Payday Super compliance. The ATO will use STP data to monitor whether super is being paid within the seven business day window after each pay date.
This article explains the key STP Phase 2 reporting categories and codes, the finalisation deadlines, the most common errors, and how Payday Super integration will work from July 2026.
STP Phase 2 expanded the reporting requirements significantly compared to Phase 1. Where Phase 1 only required gross pay, tax withheld (PAYG), and superannuation, Phase 2 requires granular classification of income types, payment components, employment details, and tax treatment.
Every payment must be classified under the correct ATO income type code. The most common codes are:
Selecting the wrong income type is one of the most frequent errors. It directly affects which tax table is applied to the employee's income. For example, classifying a working holiday maker as SAW instead of WHM means their income is taxed at resident rates instead of the correct 15% flat rate up to $45,000.
Phase 2 requires employers to break down gross payments into specific components rather than reporting a single gross figure. These components include:
Allowances must be separately reported by type:
Each allowance type has a specific reporting code. Lumping allowances together or selecting the wrong type triggers ATO queries.
Tax treatment codes combine multiple elements into a single code that tells the ATO how to treat the income for tax purposes. The code structure combines:
The tax treatment code is built from these components and applied to each employee's pay event. Your payroll software should generate the correct code based on the employee's TFN declaration details.
STP Phase 2 also requires reporting of employment basis and cessation details.
Employment basis codes:
Tax file number declaration details are now embedded in the STP report, removing the need for separate TFN submissions to the ATO.
Cessation details must be reported when an employee leaves, including the cessation type code and date.
The finalisation declaration is how you tell the ATO that your STP reporting is complete for each employee for the financial year. Until you submit the finalisation declaration, employees' income statements in myGov show as "not tax ready" and their tax returns cannot be pre-filled with accurate information.
Finalising by the deadline only makes the income statement "tax ready" if the underlying data is complete and correct. An incorrect finalisation still causes issues for your employees and may trigger ATO queries.
Key deadlines for FY2025-26:
If you have 20 or more employees, you should be reporting closely held payees each pay day along with arms-length employees throughout the year.
You can apply to the ATO for an extended due date if you cannot meet the 14 July deadline. However, the ATO assesses deferral requests on a case-by-case basis and does not grant them automatically.
The ATO has identified several recurring errors that affect a large number of employers:
Many payroll systems have an option labelled "not reportable" or "do not report to the ATO" when setting up pay codes. If you select this, the amounts are excluded from your STP report entirely. The ATO does not receive the information, employees' income statements are incomplete, and you have not met your reporting obligations.
When changing payroll software mid-year, employers must ensure year-to-date amounts are carried across correctly. Common mistakes include bringing YTD amounts into a new system and forgetting to zero out amounts in the old software, or not advising the ATO of the previous BMS ID. This results in duplicated income on employee income statements.
This commonly occurs when the finalisation declaration is lodged after 30 June. The employer accidentally selects the current year instead of the prior year. Always verify the financial year before submitting.
Some employers input all income amounts when transitioning to Phase 2 but forget to include PAYG withholding figures. This means employees appear to have earned income with no tax withheld, creating immediate problems for their tax returns.
Pre-finalisation check: Run a report from your accounting software comparing total wages and total PAYG withheld against your STP finalisation figures. Any discrepancy must be resolved before you finalise.
Travel, meals, car, and tool allowances each have different reporting codes and different tax treatment. Lumping them together or selecting the wrong code affects employees' tax outcomes and triggers ATO queries.
Classifying a contractor under a voluntary agreement as SAW instead of VOL, or misclassifying a labour hire worker, results in the wrong tax table being applied.
The ATO allows most errors to be corrected within 14 days without penalty. If you identify an error, submit an amended STP event through your payroll software promptly and keep a record showing your intent to comply.
From 1 July 2026, STP will incorporate reporting of both ordinary time earnings (OTE) and total super liability for each employee on every pay run. This is how the ATO will monitor Payday Super compliance.
How it works:
This means your STP reporting accuracy is directly linked to your super compliance. If your STP data is wrong (for example, OTE is overstated or understated), it will trigger either false SGC shortfall notifications or mask genuine non-compliance.
Maximum Contribution Base (MCB): The MCB continues to operate as a quarterly cap on required employer contributions. STP will report OTE up to the quarterly MCB, and super is calculated on that capped amount. The MCB applies per quarter even under Payday Super; what changes is the frequency of payment, not the calculation basis. Many payroll systems are still configured for quarterly MCB resets and may need updating to track cumulative quarterly earnings correctly against pay-cycle-level super calculations.
STP Phase 2 is the permanent payroll reporting standard for all Australian employers. It requires detailed classification of every payment made to employees, including income types, allowance breakdowns, tax treatment codes, and employment details. There are no further extensions or deferrals. If you employ staff, you must report via STP Phase 2 every pay run.
STP reporting happens every pay run. Each time you process payroll, your software submits an STP event to the ATO with year-to-date details for each employee. Finalisation is a separate step at the end of the financial year where you confirm the full-year data is complete and accurate. Until you finalise, employees' income statements in myGov are marked "not tax ready" and they cannot rely on the pre-filled data for their tax returns.
The ATO allows most errors to be corrected within 14 days without penalty. Submit an amended STP event through your payroll software as soon as you identify the error. Keep a record of the correction and your intent to comply. For errors identified during finalisation, correct the data and re-submit the finalisation before the deadline.
From 1 July 2026, your STP report will include both OTE amounts and super liability for each employee. The ATO will match this reported liability against actual super receipts confirmed by super funds via SuperStream. If there is a mismatch (either you reported super was due but it was not received, or the amounts do not align), the ATO will flag it for review or issue an SGC assessment.
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