Single Touch Payroll Phase 2 compliance for 2026 — 2026 AU guide
Single Touch Payroll Phase 2 (STP Phase 2) expanded the data employers must report directly to the Australian Taxation Office each pay run, covering income types, disaggregated gross amounts, and child support information. If your business has not yet completed the transition, working with a registered accountant or BAS agent is the most practical way to ensure your payroll software and reporting obligations are correctly aligned before the ATO escalates its compliance activity in 2026.
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What is STP Phase 2 and why does it still matter in 2026?
Single Touch Payroll was introduced to streamline the way employers report salary, wages, PAYG withholding, and superannuation information to the Australian Taxation Office. Phase 1 connected the majority of employers to real-time digital reporting. Phase 2 went further, requiring a more granular breakdown of payroll data to reduce the administrative burden on employees, government agencies, and employers alike over the long term.
In 2026, STP Phase 2 remains highly relevant because the ATO continues to cross-reference payroll data against income tax returns, superannuation guarantee obligations, and social services payments administered by Services Australia. Errors in your STP Phase 2 reporting can flow downstream into employee tax affairs and potentially attract compliance scrutiny. The transition period has now closed for all employer sizes, meaning there is no longer an automatic deferral available simply because a business is small.
If your organisation has recently changed payroll software, restructured its workforce, or begun hiring contractors alongside employees, it is worth reviewing your current STP setup with a qualified professional.
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The key changes introduced under Phase 2
STP Phase 2 expanded the reporting fields that payroll software must transmit. Rather than reporting a single gross wage figure, employers are now required to disaggregate payments into specific income types and country codes for working holiday makers, among other details. The main categories include:
- Disaggregated gross: salary and wages must be broken into components such as gross, paid leave, overtime, allowances, and salary sacrifice amounts - Income types: payroll systems must identify whether a payment is regular salary, closely held payee income, working holiday maker income, or another recognised category - Child support deductions and garnishees: employers who make child support deductions are required to report these through STP rather than separately to Services Australia - Employment and taxation conditions: information such as the basis of employment (full-time, part-time, casual) and the reason a payment is being made is now captured
These requirements are detailed in the ATO's STP Phase 2 employer reporting guidelines. Understanding which fields apply to your workforce requires careful mapping of your payroll categories to ATO-defined labels, something a registered tax agent or BAS agent can assist with.
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Common compliance gaps accountants are identifying in 2026
Even businesses that technically transitioned to STP Phase 2 are discovering reporting gaps during internal reviews and ATO audits. The most frequently observed issues include:
- Incorrect allowance reporting: many allowances that were previously reported as part of gross are now required to be itemised separately. Conflating these categories remains a common error - Salary sacrifice misclassification: amounts sacrificed to superannuation or other benefits must be disaggregated correctly; lumping them back into gross is a reportable error - Closely held payee reporting: directors, family members, and trustees paid through the payroll of a closely held company have specific reporting cadences that differ from arm's length employees - Software not fully updated: some payroll platforms were granted extensions to build Phase 2 functionality. If your software provider was slow to release updates, your reporting may have been incomplete without you realising
A best accountants in Sydney search is a useful starting point if you need a local practitioner who specialises in payroll compliance and can audit your existing STP configuration.
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How to assess whether your business is fully compliant
Completing STP Phase 2 compliance is not simply a matter of ticking a box in your payroll software. A thorough review involves several steps:
1. Map your payroll categories: every pay item in your payroll system should correspond to a defined ATO reporting category. This mapping exercise is the foundation of Phase 2 compliance 2. Review historical submissions: if errors were made during the initial transition, voluntary disclosure is generally viewed more favourably by the ATO than errors discovered during an audit 3. Check your employment classifications: confirm that full-time, part-time, and casual employees are correctly classified, and that any changes in employment basis have been updated in the system 4. Confirm your payroll software version: contact your software provider to confirm you are running a Phase 2-compliant version and that automatic updates have not been disabled 5. Engage a registered practitioner: the Tax Practitioners Board public register allows you to verify that any accountant or BAS agent you engage holds a current registration
Our methodology explains how we evaluate and rank practitioners listed in our directory, including the credentials and specialisations we assess.
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The role of your accountant or BAS agent in STP Phase 2
Accountants and BAS agents occupy a central role in STP Phase 2 because the reporting touches both payroll operations and tax obligations simultaneously. A BAS agent can manage the technical payroll mapping and lodgement side, while a registered tax agent can advise on the income tax and superannuation guarantee implications of misclassified payments.
When selecting a professional, look for someone with demonstrated experience in payroll systems and familiarity with your industry. Specific sectors - such as hospitality, construction, and professional services - have distinct allowance structures and employment arrangements that require nuanced Phase 2 mapping.
For a broader understanding of what working with a practitioner might involve financially, the cost guide outlines the factors that typically influence fees for payroll and compliance services in Australia.
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Penalties and how the ATO approaches non-compliance
The ATO has the authority to issue administrative penalties for false or misleading STP statements and for failing to lodge. However, the ATO has publicly stated a preference for helping businesses get it right over punishing good-faith errors. Voluntary disclosure, prompt correction, and engagement with the ATO's support channels are factors that the ATO considers when determining its response to non-compliance.
The specific penalty amounts and the ATO's graduated compliance approach are outlined on the ATO's website. Outcome guarantees about penalty outcomes are not something any practitioner can responsibly provide; the ATO exercises discretion on a case-by-case basis.
Tax policy context, including any legislative changes affecting STP, is published by Treasury, and it is worth monitoring both the ATO and Treasury for updates that may affect reporting obligations through the remainder of 2026.
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Frequently Asked Questions
Q: My payroll software provider says they are STP Phase 2 compliant. Does that mean I am compliant? A: Not automatically. Software compliance means the platform is capable of transmitting Phase 2 data. Your actual compliance depends on whether your payroll categories have been correctly mapped to the ATO's reporting labels within that software. A registered BAS agent can review your configuration. Q: Can I still use a closely held payee reporting concession in 2026? A: Closely held payees - such as family members employed in a family business - do have specific reporting rules under STP Phase 2, including flexible reporting options around timing. The current rules and any active concessions are published on the ATO's STP page. Confirm your entitlement with a registered tax agent, as individual circumstances vary. Q: What if I discover historical STP errors going back to the Phase 2 transition? A: Historical errors can generally be corrected through an update event lodged via your payroll software. Proactive correction before the ATO contacts you is considered favourably. A registered tax agent can advise on the appropriate process and whether any voluntary disclosure mechanism applies to your situation. Q: Do I need a separate engagement for STP compliance, or can my existing accountant handle it? A: This depends on your accountant's registration and specialisation. BAS agents are specifically registered to handle payroll and BAS-related reporting. If your accountant is a registered tax agent but not a BAS agent, they may partner with a BAS agent for the payroll component. You can check registrations on the Tax Practitioners Board public register.---
Sources
- Australian Taxation Office - Single Touch Payroll - ATO - STP Phase 2 employer reporting guidelines - Tax Practitioners Board public register - Treasury - tax policy - Australian Taxation Office homepage
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Information in this article is general only and not tax or financial advice. Verify the details with the linked sources or an appropriately qualified Australian professional before relying on them.
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