Xero STP Phase 2

STP = Single Touch Payroll

STP is a function that the ATO introduced that requires employers to process their payroll (weekly, fortnightly, monthly etc.) and report to the ATO that payroll information each time. It is ‘single touch’ simply meaning it is a pretty straightforward process with just a few clicks of the button through your accounting software. Read more about STP here.

If you are an employer we recommend you use Xero Payroll and handle it through there. 

Inside of Xero, you may notice the system asking you to update payroll information to ‘get ready’ for STP phase 2. Technically, the ATO wanted things sorted by 1 Jan 2022, but Xero was clever and negotiated an extension for anyone using Xero payroll (to 31 Mar 2023). So, here we are!

There are a few changes that are happening in the background around what Xero tells the ATO each time you click to do the STP filing. You can read about the changes here if you are interested.

You just need to make sure your Xero payroll settings and employee setups are ready. 

We ask that you have a go and if you get stuck we can send a proposal for our review time and expertise. Just email: [email protected] and the admin team can send the proposal.

If you use Xero payroll, here’s what you need to do:

EMPLOYEE PROFILES

1. Log into Xero
2. Payroll > Single Touch Payroll > click STP Phase 2
3. For each employee:
1. Update Employee Profiles. Each employee on the books now needs an
1. Employment Type 
2. Income Type
3. Tax Scale
2. Click on the ‘update employee profiles’ button
3. Click into each Employee > Employment tab
1. Select Employee or Contractor
2. Select Income Type

• All other info should already be there, but feel free to check and update if you need to

1. Click SAVE
1. Click into the Tax tab (most of this info should be on their tax declaration form)
1. Select the tax scale but be careful
   Read more here from Xero. If you select anything other than Regular or Working Holiday then the tax from wages needs to be calculated by you manually every time. 

• All other info should already be there, but feel free to check and update if you need to

1. Click SAVE & FILE NOW
   Or if you have questions, click SAVE and email for help.
1. While you’re at it, check and review the other tabs there.
2. Then repeat for each employee.
1. Once done, go back to the STP Phase 2 screen (payroll > STP), and mark that step as complete.

CHECK PAY ITEMS

1. Payroll > Single Touch Payroll > click STP Phase 2
2. Read this info from Xero here.
3. Right Click + open in new tab the Replace Pay Items
   Not all of the pay items they list there will be relevant to all employers.
1. This opens the Payroll Settings
2. For each of the pay items there, review the Earnings Category column to make sure it is correct. Example: Ordinary Earnings is not correct for Bonuses. This would need to be updated.
1. Click the 3 dots beside each pay item (if needing updating) > Replace
3. Update each pay item one at a time to assign one of the following ATO reporting categories for STP Phase 2:
1. Allowances
2. Bonus and Commission
3. Director Fees
   (not for Directors who get paid a usual salary/wage)
4. Lump Sum W (return to work payments)
5. Overtime earnings
6. Paid parental leave
7. Workers compensation
4. Once done, go back to the STP Phase 2 screen (payroll > STP), and mark that step as complete.

ASSIGN LEAVE CATEGORIES

1. Payroll > Single Touch Payroll > click STP Phase 2
2. Read this info from Xero here.
3. Right Click + open in new tab the Assign Leave Categories
1. Follow the prompts on screen to assign a leave category to each Leave type you have.
2. Click Next
4. Once done, go back to the STP Phase 2 screen (payroll > STP), and mark that step as complete.

You’re all done for now!

We're always here to help if you need - [email protected]

You might also like our Xero set up and training course.