Single touch payroll software is a digital solution that allows Australian businesses to report payroll information like salaries, tax, and superannuation directly to the ATO with every pay run. Running a business in Australia means navigating a world of compliance, and payroll is a big piece of that puzzle. For years, it involved manual summaries and clunky year end reports. Then came Single Touch Payroll, or STP, a major shift in how businesses report information to the Australian Taxation Office (ATO). This change made choosing the right single touch payroll software more important than ever.

This guide breaks down everything you need to know about STP, from the basics to the nuances of staying compliant, helping you turn a mandatory obligation into a streamlined part of your business operations.

What is Single Touch Payroll (STP)?

A Quick Overview of STP

Single Touch Payroll is an Australian government initiative that changed how employers report payroll information. Instead of sending a big report at the end of the financial year, businesses now send a digital report to the ATO every single time they pay their employees. This report includes crucial details like salaries and wages, tax withheld (PAYG), and superannuation information.

The system was rolled out in stages, becoming mandatory for businesses with 20 or more employees on July 1, 2018, and for all other employers on July 1, 2019. The core purpose is to give the ATO a real time view of payroll activities, which helps ensure everyone is paying the right amount of tax and super.

The STP Reporting Process Explained

So, how does it actually work? The good news is that with the right single touch payroll software, the process is mostly automatic.

1. You run your payroll as you normally would, calculating wages, tax, and super.
2. When you finalize the pay run in your software, the system automatically creates an STP report.
3. This report is securely sent to the ATO at the same time your employees receive their payslips.
4. You receive a confirmation message in your software once the ATO has successfully received the file.

This process doesn’t change your pay cycle, you can still pay staff weekly, fortnightly, or monthly. It simply integrates ATO reporting directly into your payroll workflow, making compliance a background task instead of a separate chore.

Getting Set Up with Compliant Software

What Makes Payroll Software STP Compliant?

STP compliant software is any payroll platform that has been approved by the ATO to send STP reports directly. The ATO keeps an official product register of all providers who meet their technical and security requirements.

When you use an approved single touch payroll software, you don’t have to manually fill out forms or log into a separate government portal to upload files. The software handles the secure transmission for you. Using a non compliant system is not an option unless you have a specific exemption from the ATO.

Integrating Your Software and Setting Up with the ATO

For maximum efficiency, your payroll system should connect with your other business tools. Integrating payroll with your accounting or HR software means data flows between them automatically. This eliminates manual data entry, which is not only time consuming but also a common source of errors. For startups and growing businesses, an all in one platform that handles recruiting, HR, and payroll can be a game changer. Platforms like Bolto are built to provide this unified experience, so everything from onboarding a new hire to running their first payroll happens in one place.

Setting up for STP involves a few steps:

• Choose an STP enabled payroll solution.
• Connect your software to the ATO. This usually involves linking your software’s unique ID to your business ABN in the ATO’s online portal.
• Report from your very first pay run. If you’re a new employer, there is no grace period; you must start STP reporting as soon as you start paying employees.

Maintaining Data Accuracy and Ongoing Compliance

The Importance of Accurate Employee Records

Because you’re reporting every pay cycle, the accuracy of your employee data is critical. Simple mistakes like a misspelled name or an incorrect Tax File Number (TFN) can cause your STP submission to be rejected by the ATO. It’s essential to regularly review and update employee details in your payroll system.

Each STP report you send updates the year to date totals for your employees. If you miss a report or make an error, you’ll need to lodge a correction via an “update event” or fix it in the next pay run to ensure the ATO and your employees have the correct information.

Testing Reports and Training Your Staff

Before sending your first report or after making a major system change, it’s wise to verify everything is working. Most single touch payroll software solutions allow you to review a report summary before lodging it. After submission, you should always check for the “Accepted by ATO” confirmation message.

Proper staff training is also key. When STP was first introduced, a 2019 survey revealed that an alarming 70% of micro business owners had not heard of it just months before the deadline, showing a significant knowledge gap. Ensure anyone managing your payroll understands how to use the software, finalize pay runs, and check the status of STP submissions.

Managing Compliance in the Long Term

The ATO’s initial approach to STP was educational, with grace periods for businesses making genuine mistakes. However, that has changed. The ATO has now shifted to an enforcement model, meaning ongoing compliance is expected, and penalties can be applied for failures. This means lodging every pay event on time is crucial to avoid triggering Failure to Lodge penalties.

A modern platform can significantly simplify ongoing compliance. For instance, a solution like Bolto automatically incorporates rule changes and can provide alerts, helping you stay on top of your obligations without needing to be a payroll expert.

The Evolution of STP: Phase 1 vs. Phase 2

What Changed with STP Phase 2?

STP Phase 2 was an expansion of the program that began on January 1, 2022. It requires employers to report more detailed payroll information. The goal of Phase 2 is to reduce reporting burdens elsewhere by allowing the ATO to share this richer data with other government agencies, like Services Australia.

Key changes introduced in Phase 2 include:

• Disaggregation of Gross Pay: Instead of reporting a single gross amount, employers now need to itemize components like overtime, allowances, bonuses, and paid leave.
• Employment and Taxation Conditions: You must report an employee’s employment basis (full time, part time, or casual) and income type (e.g., salary and wages, working holiday maker).
• Cessation Details: When an employee leaves, you now report the reason for termination, such as resignation or redundancy.

Key Differences Between Phase 1 and Phase 2

All employers are now expected to be reporting using the expanded Phase 2 format.

Benefits and Year End Reporting

How STP Simplifies Year End

One of the biggest benefits for employers is the simplification of year end processes. You no longer need to create and distribute PAYG payment summaries (group certificates) to your employees.

Instead, you complete a “finalization declaration” in your single touch payroll software by the deadline, which is typically July 14. This confirms to the ATO that the year to date data is complete and accurate. Once finalized, your employees’ income statements in their myGov account are marked as “Tax ready,” and they can proceed with their tax returns.

Benefits for Employers and Employees

For Employers:

• Reduced Admin: No more preparing and distributing annual payment summaries.
• Improved Accuracy: Reporting each pay cycle reduces the chance of large year end reconciliation errors.
• Streamlined Processes: Modern cloud software automates calculations and reporting, saving time.

For Employees:

• Greater Transparency: Employees can see their year to date pay, tax, and super information anytime via myGov.
• Simpler Tax Time: The ATO can accurately pre fill tax returns with the data received through STP.
• Better Protection: The ATO has better visibility over superannuation payments, helping ensure employees receive their full entitlements.

Penalties and Choosing the Right Software

What Happens if You Don’t Comply?

Non compliance with STP can result in Failure to Lodge (FTL) penalties from the ATO. For a small business, this penalty can be calculated at $210 for every 28 day period a report is late, up to a maximum of $1,050 per overdue report. For larger businesses, these penalties are significantly higher.

While the ATO is often lenient with an occasional late report, consistent failure to lodge on time will attract penalties. Given the ATO’s shift towards enforcement, using reliable single touch payroll software is your best defense against these avoidable costs.

How to Choose the Best Single Touch Payroll Software

With so many options on the market, selecting the right platform can feel overwhelming. If pricing is part of your decision, our payroll services pricing guide breaks down common costs and fee models. Here’s what to look for:

• ATO Certification: Ensure the software is on the ATO’s official STP Product Register.
• Ease of Use: Look for an intuitive interface and good customer support to help you if you run into trouble.
• Integration: Choose a solution that connects seamlessly with your accounting or HR systems to avoid manual data entry.
• Phase 2 Compliance: The software must fully support the detailed reporting required under STP Phase 2.
• Scalability: Select a platform that can grow with your business, from your first hire to a full team.

For startups and scaling companies, especially those hiring globally, an integrated platform is often the smartest choice. A service like Bolto not only handles Australian STP compliance but combines it with global payroll, EOR, and recruiting. This creates a single source of truth for your entire team, wherever they are. If you’re looking to streamline your operations, you can book a demo to see how an all in one solution can help.

Frequently Asked Questions

1. What is the deadline for lodging an STP report?

You should lodge your STP report on or before your employees’ payday. Most single touch payroll software platforms submit it automatically when you process your pay run.

2. Do I still need to give my employees payslips?

Yes. STP is a reporting system to the ATO. You are still legally required to provide a payslip to each employee within one working day of being paid.

3. What if I make a mistake in a pay run?

If you make a mistake, you can correct it in your single touch payroll software. You can either lodge an “update event” to fix the year to date figures immediately or simply correct the error in the next scheduled pay run. The new year to date totals will override the previous incorrect ones.

4. Can my accountant or bookkeeper lodge STP reports for me?

Yes, a registered tax or BAS agent can lodge STP reports on your behalf. You just need to provide them with the necessary authorization.

5. Are there any exemptions to STP reporting?

The ATO offers exemptions in very limited circumstances, such as for businesses with no internet connection or for those with other unique situations. You must apply for and be granted an exemption to be relieved of your STP obligations.

6. What if I have no employees to pay in a pay period?

If you have no employees to pay for a particular pay period, you don’t need to lodge an STP report. You simply lodge a report for the next pay period when you do pay someone.