Payday should not create a second admin job. Yet for many small business owners, payroll can become a scramble between timesheets, leave balances, tax withheld, superannuation and reporting deadlines. This single touch payroll guide sets out what you need to report, when to report it and how to keep the process under control.
Single Touch Payroll, usually called STP, is the ATO reporting system that sends payroll information directly from your payroll software each time you pay your people. For most employers, it is now part of normal payroll processing rather than an optional extra.
The aim is straightforward: employees can see their year-to-date pay and tax information through myGov, and the ATO receives more timely data. For business owners, the benefit comes when STP is built into a tidy payroll process. When records are entered correctly from the start, there is less chasing, fewer corrections and a much cleaner end to the financial year.
What Single Touch Payroll reports
Each time you run payroll, your software sends a pay event to the ATO. The information generally includes gross wages, allowances, bonuses, commissions, salary sacrifice amounts, PAYG withholding and superannuation liability. It also identifies the employee and provides year-to-date totals.
STP Phase 2 expanded the level of detail reported. Rather than treating all earnings as one figure, employers need to classify payments correctly. This may include ordinary time earnings, paid leave, overtime, bonuses, commissions, allowances and certain reimbursements.
That detail matters. An incorrectly coded allowance might affect what appears in an employee’s income statement, create confusion at tax time or lead to an avoidable payroll adjustment. Good software helps, but it cannot decide whether a payment is genuinely a reimbursement, an allowance or wages. That still requires a sensible review of the facts.
STP does not replace all of your other obligations. You still need to lodge BAS, pay PAYG withholding when due, meet superannuation payment requirements, maintain employment records and handle leave correctly. Think of STP as a reporting channel, not a substitute for sound payroll administration.
Who needs to use STP?
If you employ staff, you will generally need to report through STP. This includes many small employers, family businesses and businesses with just one employee. Company directors who are paid through payroll may also need to be reported.
Sole traders are different. You do not pay yourself wages as a sole trader, so you do not report drawings through STP. However, if you employ someone else, your business may still have STP obligations.
Contractors need careful treatment. A genuine independent contractor paid against an invoice is not automatically included in payroll reporting. But where a contractor is treated as an employee for PAYG withholding purposes, reporting may be required. Some contractor payments can also create separate taxable payments reporting obligations. The label on the invoice is not the deciding factor – the working arrangement is.
Setting up STP properly before the first pay run
The cleanest payroll is set up before money changes hands. Whether you use Xero or another STP-enabled payroll platform, take time to confirm the business details, payroll settings and employee information first.
Your ABN, business name and authorised contact details should match the ATO’s records. The software also needs to be connected to the ATO for STP reporting. If the connection is incomplete, payroll may appear to run normally while reports sit unsent or fail to lodge.
For each employee, collect the information needed to process pay accurately: their full legal name, date of birth, address, tax file number declaration, tax scale, Medicare levy details where relevant, study or training loan information, employment basis and superannuation fund details. Use the employee’s legal name rather than a nickname. Small differences in names and dates of birth can cause matching issues.
Pay items also need to be mapped to the correct STP category. This is particularly relevant for businesses that pay meal, travel, tool or site allowances, or have staff working overtime and irregular shifts. Do not assume a payroll item created years ago is still correctly configured for STP Phase 2.
For a Mount Barker trade business, for example, a genuine reimbursement for materials bought on behalf of the business is treated differently from a taxable tool allowance paid as part of wages. Both may be called an “allowance” in everyday conversation, but payroll reporting requires the right classification.
A practical payroll process for every payday
A reliable process is more valuable than trying to remember each step when everyone is waiting to be paid. Keep the workflow consistent, even if you only have two employees.
Start by approving hours, leave and any variations to ordinary pay. This is where most avoidable errors begin. A timesheet that has not been approved, a missed annual leave day or an incorrectly entered overtime rate can flow through to PAYG withholding, superannuation and STP reporting.
Next, process the pay using the correct earnings categories. Check the pay run before finalising it, particularly where there are new employees, terminations, bonuses, allowances or back pay. It is much easier to correct an issue before the pay event is submitted.
After the pay run is finalised, lodge the STP pay event through the software on or before payday. Most systems make this a simple confirmation step, but do not treat it as automatic. Check the reporting status. A pay run marked as completed is not necessarily an STP report accepted by the ATO.
Finally, keep the supporting records. Timesheets, employment agreements, leave approvals, payroll reports and payment records should be stored in an organised way. Payroll software is useful, but it should not be the only place you rely on to understand why someone was paid a particular amount.
Correcting errors without making a bigger mess
Payroll mistakes happen. The key is to correct them through the payroll system rather than trying to fix the numbers off the books.
If an employee was underpaid or overpaid, work out what occurred before making the adjustment. Was it an hours error, an incorrect pay rate, a leave issue or a wrongly coded item? The answer affects the correction and the records you need to keep.
For many errors, the next pay run can include an adjustment. The updated year-to-date figures are then reported through STP. Where an immediate correction is needed, you may need to run an unscheduled pay run. The best option depends on the type of error, the employee’s circumstances and whether money needs to be repaid.
Avoid deleting historic pay runs simply to make reports look tidy. That can create a mismatch between bank payments, payroll records and STP data. A clear adjustment with a short note is usually easier to explain later than a rewritten payroll history.
If you discover an issue after the end of the financial year, correct it as soon as practical and update the employee’s income statement through the appropriate finalisation process. Employees should not be left relying on figures you know are wrong.
The year-end STP finalisation
At the end of the financial year, employers need to finalise STP information for each employee. This confirms that the amounts reported for the year are complete and ready for the employee to use in their tax return.
For most employers, the standard finalisation due date is 14 July. Do not leave this until the last afternoon. Reconcile payroll against your general ledger, PAYG withholding records and bank payments first. Check that wages, tax withheld, superannuation salary sacrifice amounts and reportable fringe benefits, where applicable, have been treated correctly.
Once finalised, employees can generally see their income statement in myGov as “Tax ready”. They usually do not need a payment summary from you. If an employee asks for proof of income before finalisation, provide a payslip or payroll report where appropriate, but do not describe it as final tax information unless the STP finalisation is complete.
Terminated employees also need attention. Their income statement should be finalised when required, and termination payments must be categorised correctly. This is an area where a quick check before lodging can prevent a difficult clean-up later.
Common STP problems small businesses can prevent
The most common issues are not usually software failures. They are process failures: employee details are incomplete, pay items are poorly coded, a pay event is not submitted, or the year-end reconciliation is skipped.
Another recurring problem is mixing personal payments and business wages. If the owner transfers money to themselves from a business account, that does not automatically make it payroll. The treatment depends on the business structure. Sole trader drawings, director payments and employee wages are not interchangeable, and recording them incorrectly can affect tax, reporting and financial statements.
Superannuation is also often misunderstood. STP reports the superannuation liability generated by payroll, but the report itself does not prove the contribution has been paid to the fund. Keep your payment process separate and make sure contributions are paid on time through the required system.
For businesses with irregular staff, such as hospitality venues, NDIS providers or seasonal retail operators, payroll discipline matters even more. Casual shifts, higher duties, allowances and staff turnover increase the chance of coding errors. A short review before each pay run is cheaper than fixing a year’s worth of data in July.
When to ask for help
You do not need to become a payroll specialist to meet your obligations, but you do need a system you understand. Seek support when you are employing your first staff member, changing payroll software, paying unusual allowances, processing a termination, or finding that payroll and BAS figures do not agree.
Venables Accountants can help small businesses set up cleaner Xero payroll processes, review STP coding and keep reporting aligned with the rest of their accounts. The goal is not more paperwork. It is clear numbers, tidy systems and fewer surprises when deadlines arrive.
A well-run payroll process gives you something more useful than compliance: it gives you confidence that your staff have been paid properly and your business records can be relied on when you need to make decisions.
