Your Business


March 21, 2023

STP Phase 2 is's what you need to know!

by Illumin8

Your Local Accountant

STP Phase 2 is on the way...but we've got you covered in what you'll need to do to get set up before the deadline of March 31! Take a look.

Brace yourselves! Single Touch Payroll Phase 2 is coming in hot and here’s everything you need to know in a nutshell. Let’s get stuck into it.  

Firstly, the spiel on what the heck STP Phase 2 is and why it’s coming!  

STP Phase 2 is the next phase of STP which expands on the mandatory reporting requirements to the ATO. This has been implemented so that specific employee info is provided to the ATO and other government agencies like Services Australia. In a sentence really, STP Phase 2 is all about providing extra information to the government.  

The benefits of STP Phase 2...well there’s a few:

  • Automating TFN declarations straight to the ATO (saving you admin time)
  • Employers are no longer required to provided Lump Sum E (separation certificates) letters to the employees.
  • Streamlining of government benefit requests between the ATO and Services Australia, making it easier for employers/employees to interact with agencies like Centrelink & Medicare.  

That’s the benefits of the latest version, so here are the actual changes when it comes time to introduce STP.  

  • Tax Codes. Each employee will have six-character tax code now that is based on their digital TFN declaration.  
  • Breakdown of income. This is a big one here, there’s quite a few changes which include gross income, paid leave, cashed out leave, salary sacrifice (this can no longer be used to reduce ordinary earnings, it needs to be reported separately in an STP event), directors fees, overtime, bonuses, and commissions, return to work payment and backpay.  

So Illumin8 - what do I need to do to get ready for the introduction of STP Phase 2? Here are the four steps that will be required in order to implement STP Phase 2. (Don’t worry, we’ll attach a step by step guide that Xero has provided for you to follow, here’s just the crux of it!). Xero has a handy little STP Phase 2 dashboard that can be found under payroll > single touch payroll > STP Phase 2 also.

  1. Update Employee Records

This first step enables transition of existing payroll employee records to STP Phase 2. Each employee record requires:

  • Employment type
  • Income type
  • Employment basis
  • Tax scale
  1. Replace earnings pay items

This is the chunkiest part of the implementation; however the Xero guide is perfect to follow here! This part relates to replacing pay items and making sure the right pays are going to the right places.  

  1. Update leave pay items

This one relates to assigning a leave category to each of your active leave pay items in your organisation. This one helps determine how payment is reported to the ATO through STP Phase 2.  

  1. Switching to Phase 2 reporting

Once you’ve set up the previous 3 steps you’ll be able to enrol into Phase 2 reporting here in the STP2 Portal.

Those are the four steps!  

If you find you need a hand setting STP Phase 2 for your business, or are looking for someone to complete it for you, make sure you reach out to us at and we can help. When it comes to the deadline for STP Phase 2 implementation, it's March 31. So you have a bit of time here.

You can download the Xero step by step guide here.  

Or you can fill out this typeform here and shoot us some info which then our incredibly ridiculously talented team will pick up and help implement STP Phase 2 for you. For implementation, this one will be priced at $250+GST for up to 10 employees.  

So there we go! Any questions, you know where to find us.  

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Andrew from Illumin8

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