Single Touch Payroll Changes in 2025: What You Need to Know

STP is an Australian government initiative that requires employers to report employee payroll information (such as salaries, wages, tax withheld, and superannuation) directly to the Australian Taxation Office (ATO) in real-time whenever employees are paid. It is mandatory for all Australian employers. This system has transformed how businesses report payroll information, creating a direct digital channel between employers and government agencies. Let’s examine the key developments over the past year and what to expect going forward, and what does this mean for Hong Kong businesses!

Frequency of reporting for 2025

STP reporting in 2025 follows the same fundamental requirement established in previous years: businesses must report payroll data to the ATO with each pay cycle. This means:

• Weekly pay cycles require weekly STP reporting
• Fortnightly pay cycles require fortnightly STP reporting
• Monthly pay cycles require monthly STP reporting

This real-time reporting system creates a continuous flow of payroll data to tax authorities. The past year saw increased adoption of automated systems that handle this reporting automatically, reducing the manual workload for payroll teams across Australia.

In terms of annual reporting obligations, employers must complete their end-of-year finalization declarations through STP by July 14, 2025. This deadline marks the point when all employee income statements must be finalized, allowing employees to complete their tax returns with accurate information.

For businesses that operate on a fiscal year other than the standard July-June period, separate reporting schedules may apply. However, the ATO still requires these businesses to finalize income statements by the July 14 deadline to align with individual tax filing timelines.

New changes and deadlines for 2025

The past year brought several significant changes to the STP landscape, with more developments on the horizon for 2025:

Superannuation contribution increases

Starting July 1, 2025, the mandatory superannuation contribution rate will increase for all employees on the default contributions base. This continues the planned gradual increases to superannuation guarantee rates that began several years ago. Employers must ensure their payroll systems are properly configured to calculate and report these higher contribution rates.

STP Phase 2 compliance

The grace period for STP Phase 2 compliance ended in 2024, meaning all businesses must now be fully aligned with the expanded reporting requirements. This represents the completion of a multi-year transition that began with the initial introduction of Phase 2 on January 1, 2022.

STP Phase 2 requires much more detailed reporting than the original STP system, including:

• Granular breakdown of income types (base salary, overtime, bonuses, etc.)
• Specific employment conditions and status information
• Tax treatment codes that help the ATO determine how different income types should be taxed

The past year saw significant investment by businesses in upgrading their payroll systems to meet these expanded requirements. Companies that delayed this transition faced increasing pressure from the ATO as grace periods and extensions expired.

Digital identity verification enhancements

A noteworthy development in the past year has been the enhancement of digital identity verification systems connected to STP reporting. These improvements help verify employee identities more accurately, reducing the risk of fraud and ensuring proper tax treatment.

Key Tax Changes

The 2024-2025 fiscal year has introduced several tax modifications that directly impact STP reporting requirements. Understanding these changes is essential for maintaining compliance in the coming year.

Tax determination streamlining

One of the most significant developments in STP Phase 2 has been the shift in how the ATO determines tax treatments. Rather than requiring separate reporting for different tax components, the system now allows the ATO to make these determinations based on the detailed information submitted through STP Phase 2 reports.

This represents a substantial reduction in administrative burden for employers, who previously needed to manage multiple reporting channels for different tax components. The past year saw this streamlining process mature, with the ATO refining their systems to more effectively use the detailed data provided through STP.

To align payroll systems with these changes, employers should:

1. Review payroll software configurations to ensure proper classification of payment types
2. Verify that all tax treatment codes are correctly applied to different income categories
3. Test reporting outputs to confirm compliance with ATO requirements
4. Implement regular internal audits to catch any misclassifications

Tax rate adjustments

The past year saw adjustments to tax brackets and rates that will continue to affect payroll calculations throughout 2025. These changes require employers to update their payroll systems to ensure accurate tax withholding.

While the ATO provides tax tables that many payroll systems automatically incorporate, it remains the employer’s responsibility to verify these calculations are correctly implemented. Businesses should conduct periodic checks to confirm their systems are applying current tax rates accurately.

Achieve Compliance: Single Touch Payroll Compliance Explained

Single Touch Payroll (STP) compliance doesn’t need to be difficult. With clear steps and proper attention to detail, businesses can meet their reporting obligations to the Australian Taxation Office (ATO) without stress. STP streamlines how businesses report payroll information, making financial data more transparent and accessible. In 2025, proper compliance is essential for avoiding penalties and maintaining good standing with tax authorities.

Step 1: Verify Employee Information

The foundation of STP compliance starts with accurate employee information. Before making any submissions, verify that all employee data in your system matches their current status. This process should occur both during onboarding and through regular reviews.

Start by checking that each employee’s Tax File Number (TFN) is correctly entered and valid. The ATO uses TFNs to match payments with individual tax records, so errors here can cause significant problems. Ask employees to confirm their TFN if you have any doubt about its accuracy.

Next, verify employment details including:

• Full legal name (as it appears on official documents)
• Date of birth
• Current address
• Employment status (full-time, part-time, casual)
• Tax residency status

For foreign workers, ensure you have their correct visa information and work rights status, as this affects tax treatments. The ATO has increased focus on proper classification of workers in recent payroll audits.

Step 2: Submit Correct Data

Once employee information is verified, focus on the accuracy of payment data. STP requires reporting of various payment types, including:

• Salaries and wages
• Pay As You Go (PAYG) withholding
• Superannuation contributions
• Allowances
• Deductions
• Leave payments

Follow these steps to ensure correct submission:

1. Run a pre-submission report from your payroll software to check for errors
2. Verify that payment classifications match ATO requirements
3. Confirm superannuation calculations reflect current rates (increasing in 2025)
4. Check that tax withholding amounts follow current tax tables
5. Ensure all reportable fringe benefits are properly coded

Most STP-enabled payroll systems have built-in validation tools that flag potential errors before submission. Use these tools to catch issues early.

Step 3: Generate End-of-Year Reports

At the end of the financial year, you must finalize your STP reporting. This process replaces the old payment summary (group certificate) system and tells the ATO that your reporting for the year is complete and accurate.

Here’s how to finalize STP reporting:

1. Review all employee year-to-date information for accuracy
2. Make any necessary adjustments to correct errors
3. Mark employees as “finalised” in your STP-enabled software
4. Submit the finalization declaration to the ATO by July 14
5. Notify employees that their income statement is available in their myGov account

When finalizing in Xero specifically:

• Navigate to Payroll > End-of-Year > Finalise STP
• Review the suggested finalization date (usually June 30)
• Check employee data for accuracy
• Select employees to finalize
• Submit the finalization to the ATO

Step 4: Manage Corrections and Amendments

Despite best efforts, sometimes errors occur that need correction after submission. The process for managing these varies based on when you discover the error.

For errors found in the current financial year:

1. Make the correction in your next regular pay run
2. The adjustment will be reported in your next STP submission
3. No additional action is needed

For errors found after the financial year is finalized:

1. Create an adjustment event in your payroll software
2. Submit an amended STP report
3. Notify affected employees that their income statement has been updated

Most payroll software includes specific functions for handling these amendments, often labeled as “Update Events” or “Correction Events.”

Step 5: Implement Compliance Best Practices

Beyond the basic requirements, these best practices will help maintain ongoing compliance:

• Assign a dedicated person responsible for STP reporting
• Create a payroll calendar with key STP deadlines
• Implement a four-eyes principle where one person processes payroll and another reviews it
• Schedule monthly reconciliations between payroll and accounting systems
• Stay informed about STP updates through ATO communications and professional advisors
• Consider annual compliance training for payroll staff

Common Compliance Pitfalls to Avoid

Even experienced businesses can fall into these common STP compliance traps:

• Misclassifying employees and contractors: The ATO scrutinizes worker classification closely. Ensure your classifications follow current guidelines.
• Overlooking special reporting codes: Certain payments require specific codes in STP reporting, such as lump sum payments and redundancy payouts.
• Missing superannuation increases: With rates changing in 2025, ensure your system calculates the correct amounts.
• Failing to report all required payment types: Review the complete list of reportable payments on the ATO website.
• Ignoring error messages: Software warnings should be investigated, not ignored.
• Not communicating with employees: Keep staff informed about how STP affects their tax reporting.

Address these issues proactively to maintain compliance and avoid ATO penalties.

Single Touch Payroll Benefits

Single Touch Payroll (STP) has grown beyond a simple compliance requirement into a strategic business tool. The 2025 changes build upon this foundation, offering expanded benefits for businesses ready to take full advantage of the system. By reducing manual processes and increasing data accuracy, STP creates real financial and operational impacts that can transform payroll from a cost center to a value creator.

Simplified Compliance

STP has fundamentally changed how businesses interact with regulatory bodies. The system creates a direct digital pipeline between your payroll operations and the Australian Taxation Office (ATO). This connection eliminates many traditional compliance headaches through automation and standardization.

The reduction in paperwork is substantial. Before STP, businesses had to prepare and distribute payment summaries to employees, create payment summary annual reports, and manually report super contributions. Each of these processes carried administrative costs and error risks. With STP, these requirements are satisfied through your regular payroll processing. The ABS reported that in April 2023 alone, employers in Australia processed $91.4 billion in wages and salaries through STP systems, demonstrating the massive scale of this digital transformation.

Enhanced Employee Satisfaction

The payroll experience directly impacts employee perceptions of your organization. When payroll is inconsistent or opaque, it erodes trust and creates unnecessary workplace tension. STP systems provide tools that can transform this experience through increased transparency and reliability.

With STP Phase 2, employees have improved access to their own payroll information. This transparency helps them understand exactly what they’re being paid and why. They can verify that their tax withholdings, superannuation contributions, and other deductions are being handled correctly. This visibility eliminates many common payroll questions and concerns before they arise.

The real-time nature of STP reporting also supports more accurate and timely salary disbursement. The system creates standardized processes for handling various payment types, reducing the risk of misclassification or calculation errors. This leads to more consistent pay outcomes, especially for employees with complex arrangements involving allowances, overtime, or salary sacrifice components.

Cost-Effective Operations

The financial benefits of STP extend beyond compliance. When implemented effectively, these systems deliver meaningful cost reductions across your payroll operations. These savings come from multiple sources, creating compound benefits that grow over time.

Manual payroll tasks consume significant resources. Each paper form, manual calculation, and individual filing represents a hidden cost in time and potential errors. STP automation eliminates many of these tasks entirely. The reduction in end-of-year processing is particularly significant – the elimination of payment summaries alone saves many businesses dozens of administrative hours annually.

Data-Driven Decision Making

STP systems generate rich datasets that can inform broader business strategies. This benefit extends far beyond the payroll department, creating value for workforce planning, budgeting, and organizational development.

The detailed classification required by STP Phase 2 creates granular visibility into your labor costs. You can analyze spending patterns across different compensation components like base salary, overtime, allowances, and bonuses. These insights help identify cost drivers and optimization opportunities that would be difficult to spot with less structured data.

How Does STP Impact Hong Kong Businesses?

Hong Kong Businesses Employing Workers in Australia

Compliance Requirement: If a Hong Kong-based company employs staff in Australia, it must comply with STP requirements by:

• Using Australian-compliant payroll software.
• Reporting payroll data to the ATO in real time.

Additional Administration: Hong Kong businesses may need to invest in systems or hire payroll specialists familiar with Australian tax laws to meet compliance obligations.

Subsidiaries or Branches in Australia

If a Hong Kong business operates a subsidiary, branch, or other entity in Australia, the local operation must comply with STP. This means:

• Ensuring payroll systems are updated to handle STP reporting.
• Training local or remote HR and payroll staff on Australian reporting standards.

Cross-Border Employee Arrangements

Remote Workers in Australia: If Hong Kong businesses have employees working remotely from Australia (e.g., due to post-pandemic remote work flexibility), STP compliance may still apply.

Tax Residency Issues: Businesses must also navigate tax residency rules for employees and ensure correct deductions for Australian taxes and superannuation contributions.

Cost Implications

Software Upgrades: Hong Kong businesses may need to purchase STP-compliant payroll software or integrate Australian reporting features into their existing systems.

Consulting Services: Additional costs may arise from hiring consultants or outsourcing payroll functions to ensure compliance.

Penalties for Non-Compliance: Failure to comply with STP can lead to fines or penalties from the ATO, affecting the financial health of the business.

Conclusion

As we step into 2025, staying on top of Single Touch Payroll changes isn’t just about compliance—it’s about creating a smoother financial future for your business. The updates to reporting frequency, tax obligations, and submission processes might seem like small shifts, but they add up to significant improvements in how you manage payroll.

By verifying employee information regularly, submitting correct data, and generating accurate end-of-year reports, you’re not just checking boxes—you’re building a foundation for error-free payroll management. The right STP software choice becomes your partner in this journey, offering security, integration, and cost-effectiveness.