Single Touch Payroll (STP) is the Australian pay-run reporting system that sends payroll data to the Australian Taxation Office (ATO) each time you pay employees. If you are asking what is single touch payroll, it is reporting wages, PAYG withholding, and superannuation information through STP-enabled payroll software during the year instead of relying mainly on year-end reporting.
Moving from traditional payroll to STP changes reporting frequency and speeds up error detection. Whether you run payroll for a small team or manage payroll at scale, the STP vs traditional difference affects compliance, record accuracy, and internal reporting.
This guide explains how the single touch payroll system works, how it differs from traditional methods, and what typically changes for employers and employees when payroll reporting happens through STP.
Understanding What is Single Touch Payroll: The Complete Overview
Single Touch Payroll (STP) is an Australian government reporting framework that requires employers to report payroll and superannuation data to the ATO at the time employees are paid. Introduced in stages from 2018 onward, this electronic reporting system keeps payroll reporting current across the financial year.
Unlike traditional year-end reporting, STP reporting submits payroll data with each pay run. Submissions commonly include:
- Gross wages and salary payments
- PAYG withholding amounts
- Superannuation liability information
- Employee commencement and cessation details
- Allowances, deductions, and other payment types
This real-time payroll reporting approach updates payroll and withholding information throughout the year rather than assembling it mainly at year-end. For employees, STP generally replaces paper payment summaries with digital income statements accessed through myGov after the employer finalizes the year.
The Evolution to STP Phase 2
STP Phase 2 expands the detail reported to the ATO, including clearer income type categorization and more specific reporting of allowances, deductions, and employment conditions. These enhanced digital payroll requirements are intended to reduce duplicate reporting across government agencies by using payroll data already reported through STP.
Phase 2 makes correct payroll category mapping more important. When categories are mapped correctly, payroll digitization improves consistency between payroll records, ATO reporting, and employee income statements.
Traditional Payroll Systems: How Businesses Operated Before STP
Traditional payroll systems typically relied on internal payroll records during the year and heavier reconciliation work at year-end. Before payroll automation was common, many businesses used manual calculations, spreadsheets, and separate reporting workflows for different compliance obligations.
The Manual Reconciliation Burden
Traditional payroll methods often required year-round recordkeeping followed by major reconciliation after the financial year ended. Employers commonly needed to:
- Manually calculate PAYG withholding for each employee
- Maintain paper-based or spreadsheet records of all payments
- Prepare individual payment summaries (formerly group certificates) for each employee
- Submit annual PAYG withholding reports to the ATO
- Reconcile discrepancies between payroll records and bank statements
- Respond to employee queries about payment summary accuracy
This approach concentrates compliance work into reporting deadlines and increases the chance that payroll setup or calculation issues are only discovered during annual reconciliation.
The Risk Factor in Traditional Methods
Traditional systems can increase compliance risk because errors may not be found until after year-end reporting. Without automated tax reporting, common issues include:
- Incorrect tax withholding calculations
- Misclassified payment types
- Superannuation guarantee shortfalls
- Lost or incomplete employee records
- Discrepancies between reported and actual payments
When errors are found late, fixes can require amendments, employee rework, and potential penalties. With limited ATO compliance visibility during the year, small issues can compound across multiple pay runs.
Single Touch Payroll System vs Traditional: A Direct Comparison
Understanding what is single touch payroll is clearer when you compare STP reporting with traditional methods. The main differences are reporting frequency, employee statements, error correction, and ongoing compliance visibility.
Reporting Frequency and Timing
Traditional Systems: Reporting is mainly completed at financial year-end, with periodic checkpoints such as BAS or internal reconciliations depending on the business.
STP Systems: Real-time tax lodgement occurs with each pay run through STP-enabled software. This electronic payroll submission model spreads reporting across the year and reduces reliance on end-of-year catch-up work.
Payment Summary Distribution
Traditional Systems: Employers issued payment summaries to employees and then reported year-end payroll information to the ATO.
STP Systems: Employees access income statements through myGov after employers finalize year-end STP data. Employers typically do not issue paper payment summaries for STP-reported employees.
Error Detection and Correction
Traditional Systems: Errors are often discovered during year-end reconciliation, after months of payroll activity.
STP Systems: Automated payroll processing can reduce errors by validating pay categories and reporting fields before submission. Corrections are typically made by updating data in a later pay event rather than rebuilding year-end reporting, which is a practical payroll process improvement.
Compliance Visibility
Traditional Systems: Ongoing compliance can be harder to confirm because reporting is not built into each pay run.
STP Systems: Payroll compliance automation creates a continuous reporting trail. Employers can track submissions in payroll software, and the ATO receives updated payroll information throughout the year.
The Business Case for Modern Payroll Systems
STP is a compliance requirement, and STP-enabled modern payroll systems can also reduce administrative work and improve record consistency when payroll categories, reporting fields, and integrations are configured correctly.
Time Savings and Resource Allocation
STP-enabled cloud-based payroll tools often reduce year-end workload by moving reporting into the pay-run workflow. The most common operational gains include:
- Less year-end preparation work for employee income statements
- Fewer manual steps in PAYG reporting workflows
- Fewer repeated employee payment history questions when records are centralized
- More consistent payroll data for finance and internal reporting
When payroll reporting is consistent and centralized, teams can redirect time away from repetitive compliance tasks, improving payroll efficiency.
Financial Benefits of Payroll Transformation
The main benefits of payroll transformation typically come from fewer avoidable errors and simpler reporting workflows:
- Reduced error costs: Automated calculations and consistent categorization can reduce rework
- Lower audit risk: Clear records and consistent submissions can reduce avoidable reporting disputes
- Decreased administrative overhead: Less paper handling and fewer manual reconciliations
- Improved cash flow management: Better visibility into payroll liabilities and timing
Actual savings depend on business size, payroll complexity, and how accurately payroll categories and reporting fields are set up.
Enhanced Employee Experience
Smart payroll solutions can improve the employee experience by making payroll information easier to access and verify. Employees typically gain:
- Year-round access to income statements through myGov once reported and finalized
- More consistent income reporting for tax time
- Clearer visibility into pay components, including allowances and deductions
- Faster resolution of payroll questions when records are searchable
Clear, consistent records reduce friction in routine payroll questions and support digital workforce management.
Implementing Payroll Technology: Making the Transition
Moving from legacy payroll to STP-capable payroll is often more than a software change. Effective implementation of payroll technology depends on accurate employee data, correct pay category mapping, and reliable processes for approvals and payroll sign-off.
Assessing Your Current State
Before a payroll system upgrade, evaluate your current workflow and where errors or delays occur:
- What manual steps currently exist in your payroll workflow?
- How much time does your team spend on compliance activities?
- What error rates do you experience in payroll processing?
- How does your current system integrate with other business applications?
- What are your employees’ pain points with the current payroll experience?
This assessment helps identify where advanced payroll features and better data structure can reduce rework.
Selecting the Right Solution
When evaluating contemporary payroll methods and payroll software, prioritize compliance and reliability:
- ATO certification: Confirm the solution supports STP Phase 2 reporting
- Scalability: Choose a system that fits your headcount and pay complexity
- Integration capabilities: Prioritize payroll data integration with accounting, HR, and time-tracking where needed
- User experience: Ensure payroll operators can run compliant pay events consistently
- Support quality: Confirm the vendor can support ongoing compliance updates
- Security standards: Verify strong access controls and data protection
The Transition Process
A structured rollout reduces disruption and reporting errors during payroll innovation implementation:
- Data migration: Transfer employee records and year-to-date figures carefully
- System configuration: Set up pay categories, tax tables, and reporting mappings
- Parallel processing: Run both systems for one or two pay periods to verify results
- Staff training: Train payroll operators on categories, workflows, and submissions
- Go-live: Transition fully to the new streamlined payroll workflow
- Post-implementation review: Monitor performance and correct mapping issues early
Workers Compensation and STP: A Critical Connection
Workers compensation premiums are often based on wage and payroll data, so accurate payroll records matter. STP can support more consistent wage records across the year, which can help when reconciling wages for workers compensation reporting or premium calculations. If you want a quick way to sanity-check how payroll totals could affect workers comp exposure, you can use this optional workers comp cost estimator as a high-level reference point.
Premium Accuracy and Compliance
Real-time payroll reporting supports cleaner wage records across the year, which can make workers compensation reporting and audits easier to manage. Accurate wage data can:
- Reduce the risk of premium underpayment and later adjustments
- Prevent unexpected audit changes tied to missing payroll details
- Support more accurate premium forecasting
- Simplify annual wage reconciliation workflows
Integrated Compliance Management
Some integrated payroll solutions track wages by category or classification, which can support workers compensation reporting workflows. For businesses comparing job roles or reviewing payroll categories at a high level, this optional insurance exposure calculator can help frame the discussion before requesting quotes or completing insurer declarations.
- Track wages by worker classification automatically
- Generate reports for premium calculations
- Monitor compliance status across all employment obligations
- Maintain comprehensive audit trails
This approach supports payroll compliance automation, where payroll data is usable for multiple reporting and audit needs through consistent records.
Future Trends in Digital Payroll Management
What is single touch payroll remains the same—pay-run reporting to the ATO—but reporting standards and software capabilities continue to evolve.
Expanded Reporting Requirements
Government agencies continue exploring how STP can reduce duplicate reporting. Potential changes may include:
- Direct integration with state revenue authorities
- Expanded superannuation reporting
- Real-time workers compensation wage reporting
- Enhanced employee entitlement tracking
Artificial Intelligence and Automation
Payroll automation is likely to expand through:
- Predictive compliance monitoring
- Automated anomaly detection
- Stronger error prevention through category validation
- Improved self-service tools for routine employee questions
Enhanced Employee Self-Service
Digital workforce management trends point toward broader employee access to pay information and faster answers to payroll questions, reducing administrative workload while maintaining accuracy.
Taking Action: Your Path to Payroll Excellence
Understanding what is single touch payroll starts with one core difference: STP reports payroll information to the ATO with each pay run, while traditional systems relied more on year-end reporting and reconciliation. For many businesses, STP shifts payroll compliance from a periodic task to a pay-run workflow.
In most cases, STP works best when employee data is accurate, pay categories are mapped correctly, and payroll procedures are consistent. When those basics are in place, modern payroll systems can reduce rework and make reporting more predictable across the year.
If you are reviewing payroll processes, start with a practical checklist: confirm STP Phase 2 support, validate pay category mappings, review approval steps, and store records in a way that supports audits and employee questions. Small mapping errors can create ongoing reporting issues, so early validation matters.
Make one improvement this week: review pay categories, confirm the submission workflow, and document the steps your team follows each pay run. For most businesses, a repeatable process drives better payroll modernization results than adding new features.
Improve payroll efficiency by identifying where errors occur most often and tightening the workflow around those points. Clear process and accurate data usually matter more than complexity.
