What STP Compliance Actually Covers
It helps to separate two things that get talked about as if they're the same. STP Phase 2 setup is about whether your payroll software correctly codes and disaggregates every payment, income type and cessation reason the ATO requires. STP compliance is about whether the reporting built on top of that setup is actually happening the way the ATO's Single Touch Payroll employer reporting guidelines require, on time, accurately, and with errors corrected when they're found.
A business can have a technically perfect STP Phase 2 configuration and still be non-compliant, if pay events are lodged late, if the end-of-year finalisation declaration is missed, or if an error is identified and never corrected. Compliance is the ongoing discipline around the reporting, not the one-off technical setup.
Pay Event and Finalisation Deadlines
Under the ATO's rules of reporting through STP, a pay event generally needs to be reported on or before payday, meaning either the date stated in the electronic payment instruction to your bank or the date you intend the payment to reach the employee's account. This applies every single pay cycle, weekly, fortnightly or monthly, not as a periodic lodgement the way older reporting obligations worked.
| Obligation | When it's due |
|---|---|
| Pay event reporting | On or before each payday, matching the date wages actually reach the employee |
| End-of-year finalisation declaration | By 14 July for most employers, confirming the year's STP data is complete and accurate |
| Closely held payees | Employers using a registered tax or BAS agent, and closely held payees specifically, may have access to a later finalisation deadline of 30 September |
| Error correction | Generally within 14 days of the original pay event, via an update or amended pay event |
The 14 July finalisation deadline matters more than it might seem. It's the point at which the ATO treats your STP data as ready for employees to use in their own income tax returns, so a missed or inaccurate finalisation doesn't just affect the employer, it can delay every employee's return.
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Book a 15-Min CallCorrecting an STP Error
Mistakes happen, an allowance mapped to the wrong category, a pay event lodged a day late, a termination reported without a cessation reason. The ATO generally allows an error to be corrected within 14 days of the original pay event without penalty, by submitting an update or amended pay event through your payroll software as soon as it's identified. Because STP data flows to the ATO in near real time, an uncorrected error doesn't sit quietly, it compounds into every subsequent pay event's year-to-date figures until someone fixes it.
The ATO has indicated penalties are more likely to apply where an error is left uncorrected, is large in dollar terms, is deliberate, or is repeated across multiple pay cycles, rather than for an isolated, promptly corrected mistake. That's a meaningful distinction: the compliance risk isn't really the error itself, it's what happens after it's found.
Penalties for Non-Compliance Since 2025
For the first several years of STP, the ATO ran a largely transitional, light-touch approach to lodgement penalties while employers and software adjusted to the new system. That transitional period ended in 2025. The ATO has since published new guidance on penalties for non-compliance with STP reporting, and released a draft Law Administration Practice Statement, PS LA 2026/D2, setting out how it intends to apply failure to lodge penalties to STP specifically.
The underlying failure to lodge penalty mechanics follow the ATO's general model: one penalty unit for each 28-day period, or part of one, that a report is overdue, up to a maximum of five penalty units, with the base amount multiplied by two for an entity classified as a medium withholder and five for a large withholder in the month the report was due. The Commonwealth penalty unit itself increased from $330 to $364 from 1 July 2026, which lifts the dollar value of every STP penalty calculated on or after that date.
In practice, this means the cost of letting STP reporting slip, whether that's late pay events, a missed finalisation, or an uncorrected error, is materially higher and more likely to actually be enforced than it was in STP's early years. The ATO's own messaging is explicit that isolated, minor lateness is still treated with discretion, but the days of assuming STP non-compliance simply won't attract a penalty are over.
Bring your STP compliance up to the current standard
We check pay event timing, finalisation readiness and error history as part of every payroll review, not just whether STP Phase 2 categories are coded correctly.
Book a 15-Min CallDeferrals and Exemptions
The ATO recognises that on-or-before-payday reporting isn't always achievable for genuine reasons, a software outage, a natural disaster, or unreliable internet access for a micro employer in a regional area. Where one of these applies, an employer can apply to the ATO for a reporting deferral, and some micro employers facing ongoing connectivity issues may qualify for a longer-term exemption. A deferral has to be requested and approved though, it isn't automatic, and it doesn't cover routine lateness caused by an internal process issue rather than a genuine external disruption.
Staying Compliant Every Pay Cycle
Because STP compliance is an ongoing discipline rather than a one-off configuration task, the practical way to stay on top of it is to build checks into the pay cycle itself: confirming each pay event actually lodged on or before payday, not just that it was submitted eventually, reviewing any rejected or error-flagged events immediately rather than at finalisation time, and treating the 14 July deadline as a checkpoint to prepare for across the year, not a deadline to scramble toward in June. For NDIS providers, medical practices and allied health clinics running complex SCHADS or Award-based pay structures, this is usually easier to sustain as part of an outsourced or actively reviewed payroll function than as an internal task squeezed in around other admin.
Payroll outsourcing that keeps STP compliance current, not just set up
We run Xero payroll for NDIS providers, medical practices and allied health clinics across Australia, with pay event timing, error correction and finalisation managed every cycle as a registered BAS agent.
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