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What you need to know for stage one of Xero’s STP Phase 2 roll out

Posted 2 months ago in Advisors by Anthony Jones
Posted by Anthony Jones

Article updated on Monday, 5th September 2022.

All customers using Xero Payroll have been granted an extended deferral until 31 March 2023.

Just like we did with Phase 1, the Xero team is working to ensure that STP Phase 2 compliance is as seamless as possible for our partners and customers. For Xero, STP Phase 2 has been one of the largest and most complex platform build changes to affect Xero Payroll and we want to get it right.

Our product teams have done a huge amount of work to deliver this project to date, but due to the impacts of COVID-19 related illness and the resource constraints affecting the tech sector, the delivery of STP Phase 2 within Xero Payroll has been delayed. We also needed to build additional foundational features into the Xero Payroll platform prior to commencing development of STP2. These changes were complicated and required additional time and resources.

We have been working closely with the ATO to ensure everyone has the time they need to become fully compliant. As a result, we have been granted an extension to our STP2 deferral from the ATO to support our customers to meet the STP Phase 2 requirements until 31 March 2023.

Xero customers have been able to start preparing their transition as of late August as planned. Rest assured that you will have the time you need to transition by this date. 

Get ready, because the first stage of Single Touch Payroll (STP) Phase 2 is right around the corner in Xero. For a quick refresher, STP Phase 2 will see Australian businesses build on their existing STP reporting to share more information with the ATO and other government agencies each pay run. 

Read on to find out everything you need to know about what stage one will look like within Xero – and what you’ll need to do to prepare.

First things first, STP Phase 2 is the next evolution of STP reporting

Where phase one had you reporting employees’ tax and super directly to the ATO, STP Phase 2 expands the program to capture more detailed information. This reduces the compliance burden for employers and individuals, and helps the admin side of things for the ATO and Services Australia.

The changes will start rolling out from late August within Xero

The rollout is kicking off in three key stages within Xero. While stage one is taking place as planned, so we can ensure that stages two and three are equally as streamlined, we’ll be pushing their delivery dates out (rest assured, everyone will have the time they need to transition). To help you work through the upcoming changes, we’ll also be launching transition tools at each stage. 

Here is our updated timeline:

Stage one – Starting from late August: The first part of this process is transitioning your existing employee profiles to be STP Phase 2 compliant. This means providing new details on existing staff, like whether they’re an employee or contractor. Some of you may already be testing out the new employee set up process as part of our limited release so will be familiar with these fields.

Stage two – Starting from late September: Next, you’ll need to identify and update pay items with the new earnings categories as defined by STP Phase 2. New earnings categories like Directors’ fees and Bonuses and Commissions are already available in Xero Payroll, if you want to get a head start.

Stage three – Coming soon: This is the final step in the STP Phase 2 transition and will break paid leave into additional subcategories. We’ll support you with a guided payroll experience to help update existing leave categories to meet the new reporting requirements.

Stage one involves some changes to new employee setup in Xero Payroll

As detailed above, with stage one, employee onboarding will be changing. As a result, all new employees set up in Xero Payroll will naturally be STP Phase 2 compliant. These changes will start rolling out from late August and as part of this process, the employment and taxes tabs will have a new look and some additional fields to complete.

We’ll be launching the employee profile transition tool to help you with stage one

Using this guided experience, you’ll be able to update existing employee profiles to capture relevant STP Phase 2 information.

There will be an improved STP Phase 2 Portal in Xero Payroll

As part of the August release, we’re updating the STP Phase 2 Portal within Xero Payroll. This will become the central point for customers to understand and action the steps for a successful STP Phase 2 transition over the coming months.


You will be notified within Xero Payroll when each stage is available 

The transition to STP Phase 2 reporting will be gradual, and we encourage all customers to action the steps as soon as they become available within Xero Payroll. This will be made clear to you within your account, complete with guidance on what needs to be done (as will be the case for the stages to follow).

Start planning for your transition now

While you’ll have the time to make all relevant changes, the best approach is to set aside time to get started as soon as possible. This might require some planning to ensure you have all the information needed. If you’re unsure about updating your payroll data for STP Phase 2, speak to your advisor.

Xero’s educational resources and transition tools will help you through the process

Looking for more information on STP Phase 2? Check out our guide to STP Phase 2, timeline infographic and this handy checklist. You can also visit Xero Central or refer to the ATO’s employer reporting guidelines

We’ll be sharing plenty of information and educational resources over the next few months as the transition continues. Keep an eye out in Xero Payroll, Xero Central and across our social media channels for further updates, and reach out if you have any questions – we’re here to help.


Doug McCubbin
August 17, 2022 at 8.07 pm

Thank you for the video Employee Transition. However the narrator speaks so quickly I find it difficult to understand what she is saying and had trouble keeping up with her…. whether other people find it the same I don’t know, but that is my experience when watching.

Xero in reply to Doug McCubbin Xero
August 24, 2022 at 2.35 pm

Hi Doug, sorry to hear that you had some trouble keeping up with our narrator in the video. We have shared your feedback with the team. Thanks so much for letting us know.

Xero in reply to Doug McCubbin Xero
August 24, 2022 at 3.13 pm

Hi again, Doug – you can change the playback speed in the video by selecting ‘Settings’ (the cog wheel at the bottom of the video) and chosing the playback speed that you would like from the drop-down list. We hope that helps. Thanks!

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