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Specialist Accountants for Medical Practices.

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STP Phase 2 - Getting Ready Step 1

Single Touch Payroll (STP) has been in place for some time now and you (the employer) will be aware of the requirement to file pay run information with the ATO each time you process payroll. You may have also heard of STP Phase 2, where additional information is now collected and filed to the ATO with each pay run (you can read about STP Phase 2 on the ATO website here). Although the official start date for STP Phase 2 reporting was 1 January 2022, some accounting software (Xero included), have a deferral in place, meaning their users are not required to comply with STP Phase 2 until 31 March 2023.

Setting up for STP Phase 2 in Xero Recently Xero has begun rolling out STP Phase 2 (beta), this means some users can see the STP Phase 2 settings and begin preparing their Xero Payroll file for STP Phase 2. Once released to you, Step 1 is available in the STP Phase 2 Portal of your Xero file.


Here you will update your employee profiles to select employment type: Employee or Contractor.

For employees, you will also select income type: Salary and wages, Closely held payees or Working holiday maker.


What Options Should I Select?

We have had questions from our clients regarding the employment type and income type options. Please review the information below before making your selection.


Employee or Contractor - For our medical industry clients, most payees will be engaged as employees. The contractor employment type should be selected when payees have their own ABN and have entered into an agreement to provide services to you via a contract relationship. You may have these individuals set up in your payroll system in order to meet superannuation or PAYG withholding obligations. Note: Practitioners paying service fees to your entity and running their own business are not required to be set up in payroll or reported via STP2.


Closely Held Payees – This is a payee who is directly related to a small employer entity (19 or fewer employees) from which they receive payments. This can include family members of a family business, directors or shareholders of a company, and beneficiaries of a trust.

Working Holiday Maker – Foreign residents working in Australia, who have a visa subclass of either ‘417 Working Holiday’, or ‘462 Work and Holiday (backpackers)’.

Salary and Wages – The most common income type, encompassing everyone except the previously mentioned two categories. We will be in touch again in early 2023 as Xero finalises the STP Phase 2 settings and rolls these out to all users. For most Xero users, setting up STP Phase 2 will be straightforward (STP Phase 2 changes in Xero). If you require any assistance preparing your Xero Payroll file for STP Phase 2, please engage your GrowthMD adviser.

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