Single Touch Payroll Phase 2 has been in effect since January 2025, but the ATO has been patient with enforcement while employers worked through the transition. That patience is finite. If your payroll system was updated for Phase 2 when it launched, you may have assumed the matter was closed. It was not.
Phase 2 introduces more granular reporting requirements across income types, employment leave, and superannuation. Many payroll systems were updated for the technical fields but not for the underlying payroll processes those fields depend on. The result is employers who believe they are compliant because their system accepts their STP lodgements, when in fact the data being lodged is incomplete or incorrect.
This article explains what changed under Phase 2, how to tell if your payroll is actually compliant, and what to do if it is not.
What STP Phase 2 Actually Changed
Phase 1 required employers to report salaries, wages, tax deductions and superannuation information to the ATO through their payroll system each pay run. Phase 2 expands this to include all income types, more detailed leave entitlements, and employment termination information at the time it occurs.
The practical consequence for most employers is that payroll staff can no longer treat STP as a box-ticking exercise at each pay run. The classification of income types, the handling of unpaid leave, and the timing of termination reporting all require more deliberate attention. Our payroll software is configured to handle these classifications automatically as part of the standard pay run.
Where Employers Are Getting Stuck
1. Income type classification
Under Phase 2, employers must distinguish between multiple income types in their STP reports. If your payroll system is classifying all payments the same way, or if your payroll team does not know what classification applies to a particular payment type, your STP data will be inaccurate. The ATO can identify these inconsistencies and follow up. Our Award Interpretation Engine supports the detailed income classification work required under Phase 2 by maintaining structured award provisions for every applicable Modern Award.
2. Leave reporting
Phase 2 requires the reporting of leave taken and leave balances. If your payroll system is not connected to your leave management module, or if your leave categories in the system do not align with the ATO categories, you may be reporting leave information that does not match your actual liability. Our HRIS platform integrates leave management with payroll, so leave taken is automatically reflected in your STP reporting.
3. Superannuation guarantee reporting
The treatment of superannuation guarantee under Phase 2 is more complex than most payroll teams realise. If your system is not handling the splitting of super contributions across multiple funds correctly, or if it is not applying the correct contribution calculation to all eligible employees, you have a compliance exposure that will surface in an audit. Our managed payroll service includes superannuation compliance oversight as part of the service offering.
4. Termination reporting at the time of termination
Phase 2 requires employers to finalise employment information on or before the day of termination. For many payroll teams using manual processes or disconnected systems, this is a significant operational change. If your payroll system cannot produce a complete termination report on the day an employee leaves, you have a compliance gap. Our Core HR module automates termination workflows and generates the required employment finalisation data automatically.
How to Check If Your Payroll System Is Actually Compliant
The first step is to run a reconciliation report between your payroll output and your STP lodgements. Most payroll systems can produce this. If yours cannot, that is itself a red flag. The second step is to check your ATO Online account for any variance notifications or follow-up requests from the ATO. Silence from the ATO is not the same as compliance confirmation.
The third step is to review how your payroll team is classifying unusual payment types. If your system relies on individual staff knowledge rather than structured classification rules, you have a consistency risk that Phase 2 makes more consequential. Our Award Interpretation Engine replaces individual staff knowledge with structured, system-maintained classification rules that apply consistently across every pay run.
The Connection to Award Interpretation
For employers under Modern Awards, STP Phase 2 compliance is inseparable from Award interpretation. The income types, leave classifications, and superannuation calculations that need to be reported correctly under STP are the same ones that must be calculated correctly under your Award obligations. If your payroll system handles these differently for STP reporting than it does for Award calculation, you have a discrepancy that needs to be resolved.
An integrated payroll and HR platform eliminates this discrepancy by design. When Award interpretation and STP reporting draw from the same underlying calculation engine, the risk of inconsistency between what you pay and what you report disappears. Our all-in-one HRIS platform is built specifically for this integration — payroll and HR operating from a single data layer.
The Bridge
EmployeeConnect payroll is configured for STP Phase 2 reporting and updated whenever ATO requirements change. For employers in complex Award environments — including SCHADS, Security Services, and Nursing — our Award Interpretation Engine means your STP data reflects your actual Award obligations automatically.
If you want to check whether your current payroll system is producing accurate STP Phase 2 data, book a 30-minute payroll compliance review with one of our Australian specialists. We will compare your current reporting against your Award obligations and identify where the gaps are.
FREE DOWNLOAD — STP Phase 2 Readiness Checklist
STP Phase 2 brings new reporting obligations for income types, employment leave, and superannuation. Many Australian employers are discovering their payroll systems were configured for Phase 1 and have never been updated for the expanded requirements.
Download our free STP Phase 2 Readiness Checklist and walk through the five areas your payroll team needs to verify before the next BAS cycle. Covers income type classification, leave category mapping, superannuation guarantee calculations, and employer declaration sign-off.