STP Phase 2: the complete 2026 guide for Australian small businesses
Single Touch Payroll Phase 2 rolled out across every Australian business with employees — yet most small operators are still getting it wrong. Here's what changed, what the ATO wants, and how to stay compliant without hiring a second bookkeeper.
Wemu Team
Compliance
If you employ anyone in Australia — even one casual barista, even your brother-in-law who does the books on weekends — you're on the hook for Single Touch Payroll. And since 2022, the ATO's Phase 2 rollout has added layers most small business owners still haven't fully sorted out.
This guide walks through what STP Phase 2 is, what's different from Phase 1, the deadlines that matter, and how to stay compliant without drowning in payroll categorisation every fortnight.
What is Single Touch Payroll Phase 2?
Single Touch Payroll (STP) is the ATO's real-time payroll reporting system. Every time you run payroll, your software sends wages, PAYG withholding, and superannuation data directly to the ATO — no separate filing required.
Phase 2, which became mandatory from January 2022, expanded what you have to report. The ATO now wants payroll broken down into specific income categories (gross, overtime, bonuses, paid leave, allowances) instead of a single lump sum. It also absorbed reporting that used to go to Services Australia (Child Support) and the TFN declaration system.
What actually changed in Phase 2?
The four biggest changes affecting small businesses:
- Disaggregated gross pay — salary, overtime, bonuses, commissions, directors' fees, paid leave each report as separate items
- Employment basis codes — full-time, part-time, casual, labour hire, non-employee each have their own tag
- Country codes — for employees working overseas or on working holiday visas
- Child support garnishee reporting rolled into the same STP feed
No more paper TFN declarations
Under Phase 2, the TFN declaration is reported through STP — employees still fill out the form, but you don't mail anything to the ATO anymore. Keep the signed copy in your records for 5 years.
When does STP Phase 2 data need to be reported?
The headline deadline: STP data must be submitted to the ATO on or before the pay day for each pay run. Not weekly, not monthly — every single pay event, in real time.
If you pay weekly, you submit weekly. If fortnightly, fortnightly. Quarterly concessional small employers (fewer than 5 employees, close associations only) can still report quarterly in some cases — check your eligibility on ato.gov.au.
Penalties for getting STP Phase 2 wrong
The ATO's Failure to Lodge (FTL) penalty structure for STP:
| Business size | Penalty per 28 days late | Max penalty |
|---|---|---|
| Small (<$1M turnover) | $330 | $1,650 (5 units) |
| Medium ($1M–$20M) | $660 | $3,300 |
| Large (>$20M) | $1,650 | $8,250 |
The ATO has historically taken a light touch on small businesses during Phase 2 transition, but that grace period is over as of 2026. Missed submissions now accrue penalties immediately.
Common Phase 2 mistakes small businesses make
- Reporting all pay as 'gross' without disaggregating overtime, leave, bonuses — ATO flags this automatically
- Using the wrong employment basis code (e.g. calling a casual employee a 'labour hire' worker)
- Not updating STP records when an employee moves from part-time to full-time mid-year
- Forgetting to finalise the STP at year-end — employees can't lodge their tax return without this
- Relying on spreadsheets that aren't STP-enabled — the ATO only accepts feeds from approved software
How Wemu handles STP Phase 2
Wemu's Australian deployment is STP Phase 2-compliant out of the box. Pay events are tagged with the required disaggregation at the source — every shift worked knows whether it was ordinary hours, overtime, or paid leave — so the ATO submission generates automatically without manual categorisation.
The Bookkeeper Agent also cross-checks submissions against employee records and flags discrepancies (missing TFN, mismatched employment basis, unreconciled super) before you submit. Less time fighting ATO warnings, more time running the business.
Stay STP-compliant without the spreadsheet pain
Wemu handles Single Touch Payroll Phase 2 end-to-end — pay events submit to the ATO in real time, with disaggregation done automatically.
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