The moment is here; the final step of Xero’s Single Touch Payroll Phase 2 roll out is now available to all customers. Once your payroll data is updated and you’ve marked each step as complete in the STP2 Portal, you’ll be able to enrol in Phase 2 reporting – step four of the transition. This will see your business share more information with the ATO and other government agencies whenever you process a pay run.

With just over a month until Xero’s reporting deferral comes to an end on 31 March 2023, it’s crunch time for Xero Payroll users to transition to STP Phase 2 and begin mandatory reporting. We strongly recommend you make your transition today with just a few steps.

Read on for an overview of everything you need to know (and do) to make the move, and remember, your advisor is always there should you need further guidance.

Tell me, what happens if I don’t transition in time?

In order to meet your reporting obligations, if you don’t transition by the 31 March deadline, your ability to file STP may be affected until you’ve completed the STP 2 setup. If you’re unsure about your transition status or what actions you need to take, speak to your advisor. Failure to comply with these transition requirements may result in scrutiny and potential penalties from the ATO .

But can’t I just transition in March?

STP can be a technical process – and the larger and more complex your business is, the larger and more complex the task ahead will be. All of which is even more of a reason to get ahead now.

I’m seeing some warnings when processing a pay run – what are these about?

In instances where your current payroll data doesn’t meet the new Phase 2 reporting requirements, you’ll be alerted by warning banners within pay runs or employee payslips. We encourage all customers to take early action on addressing these warnings by updating your data and opting-in to STP Phase 2 as early as possible.

Why is Xero making so much noise about this?

With the deadline rapidly approaching, a large number of businesses are yet to make the transition to STP Phase 2. With this in mind, we’ve been increasing our communications. Why? Because our priority is to ensure that all of our customers are meeting their reporting obligations by making the move ahead of time.

How do I complete each step of my transition to STP Phase 2 in Xero?

To start your transition today, head on over to the STP Phase 2 Portal in Xero Payroll to progress through each of the following steps:

Step one

The first part of this process is transitioning your existing employee profiles to be STP Phase 2 compliant. This means providing new details, like whether they’re an employee or contractor. Step one also includes providing additional information when onboarding new employees to Xero Payroll. More information can be found here.

Step two

You’ll need to identify and update certain pay items with the new earnings categories defined by the ATO for STP Phase 2 reporting. This is because gross amounts for each income type will now need to be reported as a separate itemised amount, like overtime or allowances. Head to Xero Central for more details, including a breakdown of the different earnings categories.

Step three

This step will break down paid leave into additional subcategories. We’ll support you with a guided experience in payroll so you can easily update existing paid leave types to meet the new ATO reporting requirements. You may also find that some of your leave pay items already have the correct reporting category assigned. Visit Xero Central to learn more about this stage.

As you work through the steps, be sure to mark each of them ascomplete in the STP Phase 2 Portal before moving forward. This ensures your payroll data is accurate and could help reduce filing errors later down the line.

Step four: Enrol in STP Phase 2 reporting

Once your payroll data is updated and you’ve marked each step as complete in the STP2 Portal, it’s time to enrol to Phase 2 reporting. This capability is now available to all customers, meaning you can officially enrol and make the switch today.

When should I get started?

Now is the best time to complete the transition. Remember, if you miss the deadline, your ability to file STP may be affected until you’ve completed the STP 2 setup. So, we recommend ticking this off to your to-do list today to avoid any disruption later down the line.

All employing Australian businesses must become STP Phase 2 compliant – a requirement by the ATO. So if you’re working with your advisor to make the transition, keep in mind they’re likely helping many others do the same. Stay patient as they work through the process, and in the meantime, check out our Resource Hub or Xero Central for more information.

Where can I find more information on STP Phase 2?

To help you navigate the transition to STP Phase 2 in Xero, we’ve gone ahead and created a comprehensive guide. This has everything from step-by-step instructions to detailed explainers on leave, earnings and reporting categories.