By Adrienne Silla | Head of Advisory, Australian Payroll Association
Single Touch Payroll (STP) Phase 2 has been with us for several years now, but if you still find yourself second guessing some of the reporting requirements, you’re certainly not alone.
For many payroll professionals, STP Phase 2 remains one of the most challenging areas of payroll compliance. That’s not because payroll teams lack knowledge or attention to detail. It’s because the reporting requirements are incredibly detailed.
Where payroll once reported a single gross amount, STP Phase 2 now requires payments to be broken down into multiple components, each with its own reporting category, tax treatment and in some cases, different superannuation obligations. Every pay code in your payroll system needs to be correctly classified and every classification has a flow-on effect.
The tricky part? Most mistakes don’t announce themselves.
Unlike an incorrect tax scale or missing employee record, STP reporting errors rarely stop a pay run or generate an obvious warning. Instead, they quietly continue in the background until they surface months later, perhaps when an employee lodges their tax return, Centrelink reviews their entitlements or the ATO identifies a discrepancy through data matching.
By then, the same error may have been repeated every pay cycle.
Small Setup Decisions Can Have Big Consequences
One of the biggest misconceptions about STP Phase 2 is that compliance sits at the system level. In reality, it sits at the pay code level.
Every pay code carries its own reporting decision. Even if the description appears straightforward, the reporting outcome depends on the purpose of the payment, not simply its name.
Take a pay code called Travel Allowance. That sounds simple enough, but is it:
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a travel allowance within the ATO’s reasonable amount?
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an overtime meal allowance?
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another type of allowance entirely?
Each option has different STP reporting requirements.
When you consider that many organisations have dozens or even hundreds of pay codes, it’s easy to see how configuration decisions made years ago can continue unnoticed long after the original setup.
The Reporting Issues We See Most Often
Through payroll compliance reviews, we continue to see the same handful of STP Phase 2 errors appear across organisations of every size.
1. Cents per kilometre allowances
From 1 July 2026, the ATO’s cents per kilometre rate increased to 91 cents per kilometre for up to 5,000 business kilometres.
Payments up to this rate are generally exempt from PAYG withholding, while any amount paid above the rate or beyond the 5,000 kilometre limit is taxable. Neither component attracts superannuation.
The challenge is that many payroll systems report the entire payment through a single pay code. Without separate pay codes for the exempt and taxable portions, there’s a strong chance the allowance is being reported incorrectly.
2. Using the generic “Other Allowances” category
STP Phase 2 introduced eight specific allowance categories, including:
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Car
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Travel
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Meals
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Laundry
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Tools
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Tasks
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Qualifications
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Award transport
It can be tempting to map allowances into the generic Other Allowances category, particularly when setting up new pay codes.
However, doing so can affect the information that pre-fills on an employee’s tax return and may trigger unnecessary ATO questions. Wherever possible, allowances should be mapped to their correct reporting category.
3. Missing cessation details
When an employee leaves and receives a related payment, such as an Employment Termination Payment (ETP), unused leave or a lump sum the employee’s cessation date and cessation reason must also be reported.
This remains one of the more common issues identified by the ATO.
While the omission may seem minor, it can delay a former employee’s Centrelink claim or create complications with other government reporting.
4. Country code confusion
A surprisingly common issue involves the country code “na.”
Some payroll systems require a country code for employees with foreign income, inbound assignees or working holiday makers. Unfortunately, “na” isn’t shorthand for “not applicable” it’s actually the country code for Namibia.
Using it as a placeholder quietly reports incorrect employee information without generating any obvious warning.
5. Salary sacrifice super versus RESC
Salary sacrifice superannuation and Reportable Employer Super Contributions (RESC) are often confused because both relate to super contributions.
However, they serve different reporting purposes and are reported differently under STP Phase 2.
Treating them as interchangeable is another configuration issue we regularly encounter during payroll reviews.
STP Compliance Isn’t “Set and Forget”
Even if your STP setup was correct when it was first implemented, that doesn’t necessarily mean it’s still correct today.
Awards evolve. Allowance rates change. Payroll software is updated. New payment types are introduced. All of these can affect how individual pay codes should be reported.
That’s why regular reviews have become an important part of good payroll governance.
A practical approach is to complete a compliance review around four to six weeks before EOFY, giving enough time to correct any issues before new financial year rates and thresholds commence on 1 July.
With Payday Super shifting the focus of super compliance from quarterly to every pay cycle, many organisations are now adopting a twice yearly review cycle, a pre EOFY review followed by a mid year health check, to provide greater confidence that reporting remains accurate.
The good news is that most STP Phase 2 issues stem from system configuration rather than day to day payroll processing. Identifying and correcting them early can improve reporting accuracy, reduce compliance risk and give both payroll teams and employees greater confidence that the information being reported is correct.
