STP Phase 2 Compliance Checklist for Hospitality Employers

Single Touch Payroll Phase 2 (STP2) has been mandatory for most Australian employers since 1 January 2022, with the last deferrals expiring in 2023. If your hospitality business is still operating on a deferred STP2 transition, or if you've moved across but haven't verified your configuration, you could be sitting on a compliance problem that's about to surface.

This checklist is designed for hospitality compliance employers who want to confirm they're fully STP Phase 2 compliant — and understand what that actually means in practice.

What Changed with STP Phase 2?

STP Phase 1 required employers to report payroll data (gross pay, tax withheld, and super) to the ATO each pay run. Phase 2 goes much further — it requires disaggregated reporting of multiple income types and other employment details.

The key changes under STP2:

1. Disaggregated Income Types

Under Phase 2, you can no longer report a single "gross wages" figure. You must separately report:

• Salary and wages (ordinary pay)
• Allowances (with new specific ATO codes for different allowance types)
• Overtime (separately from base pay)
• Bonuses and commissions
• Directors' fees
• Leave payments (annual leave, personal leave, long service leave)
• Lump sum payments (redundancy, termination, other lump sums)

For hospitality businesses with casual and part-time employees receiving penalty rates, overtime, and various allowances, this disaggregation requirement is significant. Your payroll system must categorise and report each element separately.

2. Child Support Obligations

If you have employees with child support deductions (via a Child Support Notice or Deduction Notice), STP2 requires you to report these directly to the ATO via STP. This replaces the previous manual process of reporting to Services Australia.

3. Employment Conditions

STP2 requires reporting of additional employment information, including:

• Employment basis — full-time, part-time, or casual
• Tax scale — the PAYG tax scale applied to the employee (including Medicare levy)
• Country of residence — for foreign residents
• Working holiday maker status — if applicable (important for hospitality businesses that employ working holiday visa holders)

4. Income Stream Collections

Under STP2, income is organised into "income stream collections" — categories that group related income types for reporting purposes. The main collections are:

• SAW (Salary and Wages)
• CHP (Closely Held Payees — e.g., family members in the business)
• WHM (Working Holiday Makers)
• FEI (Foreign Employment Income)

Getting the right collection assigned to each employee is critical, especially for hospitality businesses that commonly employ working holiday makers.

STP Phase 2 Compliance Checklist

Work through this checklist to confirm your STP2 compliance status:

Payroll System

• [ ] STP2-enabled payroll software — Confirm your payroll software has STP Phase 2 enabled. Check with your software provider that you are using the STP2 product.
• [ ] Software has current ATO allowance codes — Phase 2 introduced specific codes for different allowance types (e.g., Laundry, Tool, Travel). Ensure your payroll system uses these codes correctly.
• [ ] Income disaggregation configured — Verify that your payroll system is correctly separating and coding ordinary pay, overtime, allowances, leave payments, and any lump sum payments.
• [ ] Employee records updated — Ensure each employee's record in your payroll system includes their employment basis (full-time/part-time/casual), correct tax scale, and income stream collection.

Employee Records

• [ ] Employment basis recorded — Every employee record should clearly state full-time, part-time, or casual. Review and update if any are missing or incorrect.
• [ ] Tax file number declarations lodged — All new employees should have a TFN Declaration on file. Where employees haven't provided their TFN, the correct no-TFN tax rate must apply.
• [ ] Working holiday maker status identified — If you employ employees on a Working Holiday (417/462) visa, confirm they are set up in the WHM income stream collection and the correct WHM tax rate is applied.
• [ ] Child support deductions configured — If you receive child support notices for any employees, confirm these are being reported via STP2.

Pay Items and Allowances

• [ ] Ordinary hours pay item configured — Your ordinary pay item should be mapped to the SAW income stream.
• [ ] Overtime pay item configured — Overtime should be reported as a separate item with the correct ATO income type code.
• [ ] Hospitality allowances coded correctly — Review each allowance you pay (meal allowance, uniform allowance, split shift allowance, etc.) and confirm each has the correct ATO allowance type code. Common codes include:
  • AD — Dirt/Dust/Fumes
  • AF — First Aid
  • AL — Laundry
  • AT — Tool
  • AV — Vehicle
  • DO — Domestic or overseas travel
  • OD — Other (used for allowances not covered by a specific code)
• [ ] Leave payment items configured — Annual leave, personal/carer's leave, long service leave, and leave loading should each be set up as separate pay items with the correct STP2 codes.

Reporting and Submission

• [ ] First STP2 submission completed — Confirm that at least one STP2 report has been submitted successfully since your transition date.
• [ ] No outstanding errors in your payroll software — Check your STP submission history for any errors or rejections.
• [ ] Year-end finalisation — At the end of each financial year, you must submit a finalisation declaration for each employee via STP. Confirm that your previous financial year finalisation was completed.

Working Holiday Maker Compliance

If your hospitality business employs working holiday makers (a common scenario in tourism and regional areas), you have specific obligations:

• [ ] Registered as a WHM employer — You must register with the ATO as a working holiday maker employer to apply the 15% WHM tax rate to the first $45,000 of earnings. If you haven't registered, you must withhold tax at the highest marginal rate.
• [ ] WHM tax rate applied correctly — Confirm that the 15% rate applies to WHM earnings up to $45,000; earnings above this are taxed at higher rates.
• [ ] WHM income stream selected — Employees on WHM visas should be in the WHM income stream collection in your STP2 reporting.

Common STP Phase 2 Errors in Hospitality

Based on ATO guidance and common payroll software issues, watch out for these mistakes:

1. Reporting all pay as "salary and wages" — Many businesses that transitioned from STP1 simply kept their existing single gross pay item and didn't disaggregate. The ATO is increasing audit activity around STP2 compliance.

2. Using "Other" allowance codes for everything — There are specific ATO codes for many common hospitality allowances. Using "OD" (Other) as a catch-all when a specific code applies is non-compliant.

3. Not updating employee records for employment basis — STP2 requires the employment basis for each employee. If you have legacy employee records that were set up before the STP2 transition, some may be missing this information.

4. Missing year-end finalisation — Each financial year must be finalised via STP2. This replaces the old payment summary (group certificate) process. Employees cannot lodge their tax returns accurately until finalisation is complete.

5. Incorrect WHM setup — Working holiday makers in hospitality are extremely common. Errors in WHM tax rates (applying resident rates instead of WHM rates, or vice versa) are a significant exposure.

What Happens If You're Non-Compliant?

The ATO uses STP data for a range of compliance activities. Non-compliant STP reporting — including incorrect income disaggregation, missing allowance codes, or failure to finalise — creates audit risk.

The ATO can impose failure to report penalties and, in more serious cases, false or misleading statement penalties for incorrect reporting.

Beyond ATO risk, STP2 non-compliance often reflects underlying payroll issues — incorrect categorisation of pay items usually means incorrect payment of entitlements, which creates Fair Work exposure on top of ATO exposure.

How Reguladar Helps

STP Phase 2 compliance is one obligation among many for hospitality businesses. Keeping track of when finalisation is due, when WHM employer registration must be renewed, and when award pay rates change affecting your STP reporting — especially with payday super approaching — is exactly the kind of multi-deadline management that falls through the cracks.

Reguladar tracks your ATO obligations alongside your Fair Work, WHS, and licensing requirements in one dashboard. You see everything that's due, in priority order, with clear guidance on what to do next.

Get your free compliance check at Reguladar →