For many small business owners, the hardest part of payroll is not paying employees. It is being confident that the information sent to the ATO is correct every time. When you set up Single Touch Payroll properly from the start, reporting becomes part of your normal pay run rather than another deadline to worry about.
Single Touch Payroll, commonly called STP, requires employers to report payroll information to the ATO through STP-enabled software on or before payday. The report generally includes employees’ year-to-date wages, PAYG withholding and superannuation liability information. The setup process matters because errors in employee records, pay categories or business details can carry through to every report.
What you need before setting up Single Touch Payroll
A reliable STP setup begins with accurate business and employee records. Before opening your payroll software, confirm that your Australian Business Number, legal business name and payroll tax registrations are current. You must be registered for PAYG withholding if you employ staff and withhold tax from their wages.
You will also need the correct branch number for your withholding account, if your business has more than one branch. This is often overlooked, particularly where a business has changed structure, acquired another operation or has payroll managed separately from its day-to-day bookkeeping.
For each employee, check that you have their full legal name, date of birth, residential address and tax file number declaration details. Their employment basis, such as full-time, part-time or casual, should be recorded accurately. You will also need their pay rate, leave entitlements, relevant award or agreement conditions, bank details and superannuation fund information.
This preparation is not administrative busywork. STP reporting uses the information held in your payroll file. If the file is incomplete or coded incorrectly, the ATO may receive information that does not match the employee’s circumstances.
Choose payroll software that suits your business
STP reports must be lodged through STP-enabled payroll software or a registered intermediary. The right option depends on the size of your team, how often you pay staff and how much support you need with payroll administration.
A micro employer with one or two employees may be comfortable with a simple, low-cost payroll product. A growing business may need software that manages leave, timesheets, award interpretation, superannuation payments and reporting in one place. Businesses with complex rosters, multiple locations or numerous pay categories should make sure the software can handle those needs before committing.
Price is relevant, but it should not be the only consideration. A cheaper system can become costly if it requires manual corrections every pay cycle or does not suit the way your employees are paid. Look for clear support, secure access controls, regular tax and payroll updates, and the ability to give your bookkeeper or accountant appropriate access without sharing personal logins.
Connect your software to the ATO
Once your software is selected, it needs to be authorised to lodge STP reports for your business. The exact process varies between providers, but it commonly involves linking the software to the ATO through Online services for business and Relationship Authorisation Manager access, or completing an authority within the software.
Use the legal entity details attached to the withholding account, rather than a trading name alone. If the entity name, ABN or branch number does not match ATO records, reports may be rejected or sent under the wrong account.
Where a payroll provider, bookkeeper or registered tax agent lodges on your behalf, make sure roles and responsibilities are clear. Someone still needs to review pay data, approve payroll and act promptly on any rejected reports. Outsourcing the task can reduce workload, but it does not remove the need for accurate source information.
Configure pay items carefully
This is the part of the process that most affects the quality of your ongoing reports. Each item in the payroll system needs to be mapped to the right category. Ordinary time earnings, overtime, allowances, bonuses, commissions, paid leave, salary sacrifice arrangements and reimbursements do not always receive the same treatment for tax, superannuation and STP purposes.
STP Phase 2 reporting introduced more detailed income and employment information. Depending on the payment, your software may require an income type, employment basis, tax treatment code or a specific payment category. The software often guides these selections, but its suggestions should still be checked against your circumstances.
For example, a genuine reimbursement for an employee’s out-of-pocket business expense is not the same as an allowance paid as part of their wage. Similarly, a salary sacrifice arrangement needs to be recorded in a way that reflects both the employee’s pay and the nature of the sacrifice. Incorrectly grouping these amounts can lead to confusing income statements for employees and additional corrections later.
It is sensible to test your payroll settings with a sample pay run before the first live pay day. Review the gross pay, PAYG withholding, superannuation calculation, leave accruals and each pay category. A few minutes spent checking now is far easier than untangling a year of incorrectly coded payroll data.
Run payroll and lodge the STP report on payday
After setup, STP becomes a regular payroll step. Process employee hours or salaries, review the calculations, finalise the pay run and submit the STP report on or before the day employees are paid. A pay event can be lodged even if staff are paid by bank transfer later that day, provided the reporting is completed on payday.
Do not assume a report is lodged simply because payroll has been processed. Check the software status and resolve any submission errors. Common issues include an invalid tax file number format, missing employee date of birth, an ABN mismatch or an authority connection that has expired.
Employees can generally view year-to-date income information through ATO online services linked to myGov. This is helpful, but it also means errors can be visible to employees quickly. Clear payslips and prompt explanations help avoid concern where a figure changes after a correction.
Keep superannuation separate from STP reporting
STP reports your superannuation liability, but it does not by itself pay superannuation into an employee’s fund. You still need to make contributions through a compliant payment process by the required due dates. For most employers, using a clearing house or payroll-integrated super payment service can make this easier to manage.
When hiring a new employee, provide the required choice of super fund information where applicable. If an employee does not make a valid choice, you may need to request their stapled super fund details from the ATO before paying contributions. Keep records of the choice process and payment confirmations, as these are separate obligations from lodging an STP report.
Correct mistakes as soon as you find them
Payroll mistakes happen. An employee may submit a timesheet correction, an allowance may be coded to the wrong category, or a pay run may be processed under an outdated rate. The practical response is to correct the payroll records and send the appropriate update through your software.
Most payroll systems allow an update event that sends revised year-to-date figures to the ATO. The right correction method depends on the nature of the mistake and the software used. Avoid trying to fix reporting figures outside the payroll file, as this can create a mismatch between your records, payslips, bank payments and STP data.
Keep a short note explaining significant corrections and who approved them. This creates a useful audit trail and makes it easier to answer employee questions or review the file at year end.
Finalise payroll at the end of the financial year
STP has largely replaced the need to give most employees payment summaries. Instead, employers finalise their STP information after 30 June so employees can see it as tax-ready in myGov. The usual finalisation due date is 14 July, although different arrangements can apply in some circumstances.
Before finalising, reconcile payroll reports against your general ledger, PAYG withholding activity statement figures, bank payments and superannuation records. Check that terminated employees have been handled correctly and that fringe benefits, reportable employer super contributions or other reportable amounts have been considered where relevant.
A careful reconciliation provides confidence that the amounts reported through the year agree with the business records. It also reduces the chance of an employee lodging a tax return using information that later needs to be amended.
When professional payroll support is worthwhile
STP can be straightforward for a stable business with a small team and simple wages. It becomes more involved when employees work irregular hours, receive several allowances, have salary packaging arrangements, move between roles or are paid under different awards. Changes to software, business structures or PAYG registrations can also justify a review.
Hire An Accountant can assist with payroll setup, ongoing processing and practical checks on your reporting obligations. The aim is not to make payroll feel more complicated, but to give you a clear process that fits your business and keeps accurate records in place.
A sound STP setup gives you more than a lodged report. It gives your employees clearer information, your business cleaner records and you a calmer path through each pay day.
