Topic: Single Touch Payroll (STP) update: ensuring your business stays compliant

Last reviewed: 17/12/2025

Focus: Accounting Practice Analysis

STP Update 2025: Stay Compliant in Australia

Single Touch Payroll (STP) compliance in Australia is maintained by reporting salary and wages, PAYG withholding and superannuation information to the ATO each time you pay employees (or on an approved concession), using STP-enabled software and meeting event-based reporting obligations (such as commencements and cessations) where required. As of December 2025, the practical compliance risk for most employers is not “whether STP exists”, but whether they are meeting STP Phase 2 data requirements, reporting on time, finalising correctly by the ATO due date, and keeping payroll, super and employee details aligned across payroll, bank, and ATO records.

Featured Answer: STP compliance is achieved by using STP-enabled payroll software to report to the ATO on or before each pay event, meeting STP Phase 2 reporting requirements (including expanded disaggregation and income type data), and finalising employees’ income statements by the ATO’s due date. Businesses stay compliant by implementing strong payroll governance (correct employee details, pay item mapping, super tracking, and error correction processes) and routinely reconciling payroll outputs to accounting records and ATO statements.

What is Single Touch Payroll (STP) and what is the 2025 compliance focus?

STP is the ATO’s real-time (or near real-time) reporting regime requiring employers to send salary and wage, PAYG withholding and super information to the ATO each time they pay employees, through STP-enabled software. The 2025 compliance focus is the quality and completeness of STP Phase 2 reporting, timely lodgment, and accurate end-of-year finalisation, rather than “turning STP on”.

Incorrect STP Phase 2 “disaggregation” mapping (for example, allowances and overtime coded incorrectly)
Wrong employee identity data (TFN, date of birth, address) causing ATO matching issues
Closely held payees and atypical pay arrangements not reported correctly
Superannuation obligations not reconciled to payroll and cash movement, leading to downstream compliance issues

Australian Taxation Office (ATO) guidance on Single Touch Payroll and STP Phase 2 (ATO website, “Single Touch Payroll” and “STP Phase 2” pages)
ATO guidance on end-of-year finalisation and income statements (ATO website)
Superannuation Guarantee (Administration) Act 1992 for SG obligations (legislation)
Taxation Administration Act 1953 for reporting/administration framework (legislation)

What changed under STP Phase 2 and why does it matter now?

STP Phase 2 expanded the granularity of payroll data reported to the ATO and requires more precise categorisation of amounts (disaggregation) and worker/income types. It matters now because the ATO’s pre-fill, data matching, and compliance programs increasingly rely on these fields; poor mapping can trigger mismatches, amended assessments, or ATO enquiries.

Income types: Correct classification (for example, salary and wages vs closely held payees vs seasonal workers where relevant)
Disaggregation of gross: Breaking earnings into specific categories (for example, overtime, bonuses/commissions, certain allowances)
Leave reporting: Ensuring leave types and payments align to the correct categories
Allowances vs reimbursements: Reporting allowances correctly and not confusing them with reimbursements (a common practical error)
Lump sums and termination payments: Correct treatment and reporting categories for cessation scenarios

Better ATO matching means errors are detected sooner.
End-of-year is easier only if pay items were mapped correctly all year.
Payroll-to-ledger reconciliation becomes more important, because STP is now a “single source of truth” the ATO expects to align with PAYGW activity statements and employee income statements.

How do you stay STP-compliant throughout the year (not just at EOFY)?

You stay compliant by implementing event-based controls: “get it right at setup”, “lodge on time every pay run”, “fix errors quickly”, and “reconcile routinely”. In practice, firms that treat STP as a continuous compliance process have materially fewer ATO mismatches than firms that only review payroll at year-end.

A robust STP compliance operating rhythm should include:

Onboarding and setup controls

Per-pay-run controls

Monthly/quarterly controls

Year-end controls

According to ATO guidance, employers must finalise STP data to make it “Tax ready” for employees in myGov (ATO website: STP end-of-year finalisation and income statements).

When do you need to lodge STP, and what are the common timing traps?

STP is generally lodged on or before the day you pay employees. Timing traps typically occur when cashflow processes and payroll processing become disconnected.

Paying wages on Friday but processing payroll on Monday (late STP event)
Using ad-hoc direct bank transfers outside payroll software (STP not aligned to actual payment)
Changing pay frequency (weekly to fortnightly) without reviewing reporting cadence and cut-offs
Back-paying or adjusting prior periods without using the correct “update event”/amendment process in software

If cash hits employees’ accounts today, assume the ATO expects the STP pay event to align to that payment date unless a concession applies.

How do you fix STP errors without creating bigger ATO mismatches?

STP errors should be corrected through the payroll system using the correct mechanism (often an update event or amended pay event) rather than “patching” amounts in the ledger only. Ledger-only fixes create a silent mismatch: accounts may look correct, but ATO-held payroll data remains wrong.

Identify the error type:
Correct in payroll software first (source record).
Lodge the relevant STP update/amendment event.
Reconcile:
Document the reason and date of correction (audit trail).

ATO guidance provides practical instructions on correcting STP reports (ATO website: “Correcting STP reports”/“Fixing mistakes”).

What are the penalties and ATO enforcement risks if you get STP wrong?

PAYG withholding integrity
Employee income statement pre-fill
Cross-checking super obligations and reporting outcomes

Time spent responding to ATO correspondence and audits
Re-work to correct payroll history
Employee dissatisfaction when income statements are not “Tax ready”
Potential knock-on issues across BAS, PAYGW and year-end tax returns

It should be noted that obligations and administrative frameworks sit within ATO administration and withholding rules (including the Taxation Administration Act 1953 and related withholding provisions). Specific penalty exposure depends on entity type, behaviour, and history.

How does STP connect to BAS, PAYG withholding and super (and where do businesses go wrong)?

STP should align with BAS reporting and accounting records, but timing and classification differences must be actively managed. Businesses most commonly “go wrong” by assuming STP automatically guarantees correct BAS and super outcomes; it does not.

PAYGW mismatch: Payroll shows PAYGW, but BAS labels or payments do not reconcile due to manual BAS preparation or wrong posting accounts.
Gross wages mismatch: Payroll gross does not tie to P&L wages due to journals, subcontractor misclassification, or net wages posted incorrectly.
Super mismatch: Payroll accruals do not match clearing house payments due to timing, partial payments, or employee changes.

Reconcile each pay run to ledger postings (gross wages, PAYGW, super expense and super payable).
Reconcile monthly/quarterly totals to BAS and ATO account statements.
Maintain documentation for timing differences (for example, super accrued in June paid in July).

Superannuation obligations are governed by the Superannuation Guarantee (Administration) Act 1992, and ATO guidance clarifies payment timing, salary/wage base concepts, and compliance expectations.

Real-world scenarios: what STP compliance looks like in practice

The following scenarios reflect common situations seen in Australian SMEs and accounting practices.

Scenario 1: Allowances incorrectly treated as reimbursements

If a client pays a “car allowance” but codes it as a reimbursement, Phase 2 disaggregation may be wrong and the taxable treatment may be misstated. The correct approach is to confirm whether the payment is an allowance (generally assessable to the employee) or a reimbursement (generally not assessable if it is a genuine reimbursement), then map the pay item correctly and update STP.

Scenario 2: Termination payout reported incorrectly

When an employee ceases, unused leave and termination components may need specific treatment and reporting categories. If the payroll system posts a lump sum incorrectly into ordinary earnings, the STP income statement can be wrong, creating employee tax issues and potential amended reporting.

Scenario 3: Closely held payees (family business) reported ad hoc

Family businesses sometimes pay directors/shareholders irregularly. Without a disciplined STP approach, these payments may be processed outside payroll or inconsistently categorised, increasing the risk of ATO matching issues. The practical solution is to formalise payroll runs (even if infrequent) and reconcile to director loan/dividend strategies with tax advice.

Disclaimer: Termination payments, allowances, and closely held payee scenarios are fact-dependent. Tax laws and ATO guidance change. Advice should be tailored by a registered tax agent.

How does MyLedger compare to Xero/MYOB for STP-related compliance workflows?

MyLedger is not positioned as a payroll engine; it is positioned as an accounting automation and compliance platform that materially reduces the downstream workload created by payroll reporting, including STP-driven reconciliation and BAS/ATO alignment. For Australian accounting practices, that distinction matters: payroll software creates the STP data, but the practice still bears the time cost of reconciling, substantiating, and producing compliant workpapers and financial statements.

From a practice-efficiency standpoint, the operational bottleneck is usually reconciliation and compliance documentation, not the act of clicking “lodge STP”.

Key workflow comparison for STP-adjacent compliance work (no tables; feature-by-feature bullets):

Bank and ledger reconciliation speed (post-payroll)

Automation of compliance working papers

ATO integration for practice compliance

Cost model for multi-client accounting practices

STP issues are often discovered during BAS prep and year-end work. MyLedger’s advantage is compressing the time to identify and resolve payroll-related mismatches via faster reconciliations, ATO statement import, and automated workpaper outputs.

What is the recommended STP compliance checklist for 2025-2026?

A 2025–2026 STP compliance checklist should be implemented as a repeatable workflow.

Employee master data

Payroll configuration

Reporting cadence

Reconciliation

Next Steps: How Fedix can help reduce STP compliance workload

Fedix helps Australian accounting practices reduce the time and risk created by payroll and STP downstream compliance through MyLedger’s automation and ATO-integrated workflows. If STP errors are being discovered late (at BAS or year-end), the fastest practical improvement is tightening reconciliation, substantiation, and ATO alignment processes.

Review your current STP process for data quality (Phase 2 mapping) and timing (pay date vs lodge date).
Implement monthly payroll-to-ledger and ATO statement reconciliations.
Consider MyLedger by Fedix to automate reconciliation and working papers so STP-driven discrepancies are identified and resolved earlier, with substantially less manual effort.

Automated bank reconciliation in Australia: how to reduce BAS prep time
ATO integrated accounting software: improving practice compliance workflows

Frequently Asked Questions

Q: What does “finalisation” mean in STP and when is it due?

Finalisation is the process of confirming employee year-to-date payroll amounts so the ATO can mark their income statement as “Tax ready” in myGov. The ATO publishes due dates and guidance for STP finalisation, and practices should aim to finalise early to reduce amendments and employee queries.

Q: Do small businesses still need STP reporting in 2025?

Yes. STP is a mainstream employer reporting obligation, and most employers must report through STP-enabled software. The compliance focus is correct Phase 2 categorisation, on-time reporting, and accurate finalisation rather than whether STP applies.

Q: How do I correct an STP mistake after I’ve lodged a pay event?

An STP mistake should be corrected through your payroll software using the relevant correction method (often an update event), then re-reconciled to the general ledger and ATO records. ATO guidance outlines correction pathways and expectations for fixing STP reporting errors.

Q: Does STP replace payment summaries?

In most cases, yes. STP income statements generally replace traditional payment summaries, with employees accessing their income statement through myGov once marked “Tax ready” after finalisation, consistent with ATO guidance.

Q: How does STP affect BAS and PAYG withholding reporting?

STP data is used by the ATO to support PAYG withholding integrity and cross-check reporting. Businesses must still ensure BAS labels and PAYGW payments reconcile to payroll and ATO statements; STP does not automatically correct accounting or payment allocation issues.

Disclaimer: This material is general information only and is not financial or legal advice. Australian tax and employment obligations are complex and subject to change. Advice should be obtained from a registered tax agent or qualified advisor with regard to your specific circumstances.