Single Touch Payroll Setup Guide for Small Businesses (Australia 2026)

Complete STP Setup, Phase 2 Requirements & Compliance Checklist

Setting Up Payroll Incorrectly Can Cost You

Setting up payroll incorrectly is one of the fastest ways to create avoidable ATO problems.

If you are:

• Hiring staff for the first time
• Switching payroll software
• Fixing an existing payroll setup

Then Single Touch Payroll (STP) setup is not just admin — it’s compliance.

The good news?
Once your STP setup is done correctly, your payroll reporting becomes simple, accurate, and stress-free.

Key Takeaways

• STP requires payroll data to be reported to the ATO every pay run
• Proper setup depends on software, employee data, and pay item mapping
• STP Phase 2 requires detailed payroll classification
• Most issues come from data errors, not software problems
• A clean setup saves time and prevents ATO penalties

What Is Single Touch Payroll (STP)?

Single Touch Payroll is the ATO’s system for reporting payroll information in real time.

Instead of reporting annually, businesses must submit payroll data:

Every time they process a pay run

What STP Reports

STP submissions include:

• Employee details
• Gross wages
• PAYG withholding
• Superannuation contributions

Employees can also view their year-to-date income via ATO online services.

Who Must Use STP?

If you employ staff in Australia, STP generally applies to you.

• Mandatory for large businesses since 1 July 2018
• Mandatory for small businesses since 1 July 2019

Common mistake:
Thinking small businesses are exempt — they are not.

Why STP Setup Matters From Day One

STP errors don’t stay small.

If your setup is wrong:

• Every pay run will carry errors
• Fixing it later becomes complex
• ATO discrepancies increase

Correct setup = long-term compliance + fewer issues

Understanding STP Phase 2

STP Phase 2 introduced more detailed reporting requirements.

What Changed in Phase 2

You now need to report:

• Disaggregated gross payments
• Allowances (specific categories)
• Overtime
• Income types (e.g. salary, closely held payees)

Why This Matters

Your payroll system must:

• Assign correct categories to each pay item
• Separate wages, allowances, and overtime
• Avoid generic or “miscellaneous” entries

Incorrect mapping = incorrect reporting (even if totals look right)

STP Reporting Requirements

Complete STP Setup Process (Step-by-Step)

1. Verify Business Details

Before connecting to STP:

• ABN
• TFN
• Legal business name
• Address

Must match ATO records exactly

2. Set Up Employee Records Properly

Each employee must have:

• Full legal name
• Address
• TFN
• Date of birth

Incorrect data = STP rejection

3. Choose the Right Payroll Software

Popular STP-compliant software includes:

• Xero
• MYOB
• QuickBooks

The best choice depends on:

• Payroll complexity
• Business size
• Support availability

4. Connect Your Software to the ATO

This step involves:

• Registering for STP
• Authorising a declarer
• Linking via myGovID

Important:
Only authorised users can lodge reports

5. Map Payroll Items Correctly (Critical Step)

This is where most businesses fail.

You must correctly map:

• Salary & wages
• Allowances
• Overtime
• Deductions
• Super

• Avoid:
• Legacy pay items
• Generic categories
• Incorrect classifications

6. Enter Opening Balances (If Migrating)

If switching systems mid-year:

• Import year-to-date wages
• PAYG totals
• Super obligations
• Leave balances

Incorrect balances = incorrect STP reporting

7. Run a Test Pay Run

Before going live:

• Process a dummy payroll
• Submit test STP report
• Fix any errors

This step prevents real payroll issues

Real Example: Small Business Payroll

A small café:

• 3 employees
• Weekly wages: $3,000
• PAYG withheld: $450

Process:

1. Payroll processed in software
2. Wages calculated
3. PAYG applied
4. STP report lodged before payday
5. ATO receives updated data

With correct setup, this becomes a repeatable weekly process

STP Setup Checklist (Copy & Use)

• STP-enabled software selected
• Business details verified
• Employee records complete
• Pay items mapped correctly
• ATO connection established
• Opening balances entered
• Test submission completed

Comparing STP Software Options

How to Choose

Choose software based on:

• Payroll complexity
• Ease of use
• Accountant/bookkeeper support

Best software = the one you can maintain accurately

Common STP Errors (And How to Avoid Them)

1. Employee Data Errors

Examples:

• Incorrect TFN
• Missing address
• Wrong name format

Fix: Verify all employee records before lodging

2. Pay Item Mapping Errors

Examples:

• Allowances grouped as wages
• Overtime not separated
• Wrong income type

Fix: Review every payroll category

3. Submission Errors

Examples:

• Late lodgement
• STP not submitted
• Incorrect ATO connection

Fix: Create a payroll checklist and routine

Avoiding ATO Penalties

STP makes payroll data visible to the ATO in real time.

Risks include:

• Late reporting
• Incorrect classification
• Repeated corrections

• Best protection:
• Clean setup
• Consistent process
• Regular review

Frequently Asked Questions

What is STP in simple terms?

A system that sends payroll data to the ATO each time you pay employees.

What is STP Phase 2?

An updated version requiring more detailed payroll reporting categories.

When do I report payroll?

On or before each payday

Do I need special software?

Yes — STP-enabled payroll software is required.

Final Thoughts

Single Touch Payroll is now a standard part of running a business in Australia.

The difference between stress and simplicity comes down to how well your system is set up.

• A poor setup creates ongoing issues
• A proper setup creates a smooth, repeatable process

Contact Supertax

Need help setting up STP or fixing payroll errors?

Supertax helps small businesses stay compliant and stress-free

Website: https://supertax.com.au/

• Suite 1, 7 Bridge St, Werribee VIC 3030
• (03) 7074 8818
• info@supertax.com.au

This article contains general information only and does not take your personal circumstances into account. Tax and superannuation rules change, and some measures discussed may be subject to legislation. Speak with a registered tax agent before acting.