The introduction of Single Touch Payroll (STP) Phase 2 has reshaped employer reporting obligations across Australia. Designed to improve data integrity and streamline reporting, the system also increases the level of scrutiny on payroll compliance. As a result, even minor mistakes can trigger Australian Taxation Office (ATO) reviews or audits.
Understanding the most common errors is the first step toward preventing compliance issues and maintaining accurate payroll records.
Misclassification of Workers
A key area attracting ATO attention is worker classification. Many organisations incorrectly categorise workers as contractors when they should be treated as employees.
Why this matters:
- It impacts superannuation entitlements
- Alters PAYG withholding responsibilities
- Can lead to underpayment of entitlements
Misclassification often stems from assumptions rather than an assessment of control, independence, or integration into business functions. Employers should use ATO guidelines to determine status and retain written justification for classifications.
Incorrect Reporting of Allowances and Loadings
STP Phase 2 introduced granular reporting requirements for pay components. Mistakes occur when employers:
- Combine allowances instead of itemising them
- Mislabel fringe benefit elements
- Report allowances under incorrect categories
These inaccuracies distort data held by the ATO and may prompt follow-up reviews. Businesses should review pay categories, map them correctly within payroll software, and update configurations when workplace benefits change.
Superannuation Calculation Errors
Superannuation remains one of the most monitored reporting areas. Common mistakes include:
- Incorrect calculation of ordinary time earnings
- Late payments or missing contributions
- Errors in employee fund information
Because STP feeds superannuation data into ATO systems, inconsistencies or delays are quickly identified. Employers should reconcile super manually or via automated reports at the end of each pay cycle and ensure contribution lodgements meet deadline requirements.
Failure to Report Employment Changes
Real-time reporting means employment changes must be reflected promptly. The ATO flags:
- Delayed termination reporting
- Missing updates for salary sacrifice arrangements
- Unrecorded changes in employment status
To avoid these issues, employers should formalise workflows that capture employee movements and require teams to update payroll systems immediately.
Inconsistent Year-to-Date Balances
Year-to-date (YTD) discrepancies between pay cycles attract instant curiosity. These differences are usually caused by:
- Manual adjustments
- Failed payroll recalculations
- Using multiple systems without synchronisation
A reliable payroll platform that maintains continuous YTD balances helps minimise errors. Employers should also keep logs explaining any manual intervention.
PAYG Withholding Errors
PAYG withholding mistakes continue to be a major audit trigger. Common causes include:
- Incorrect tax threshold applications
- Missing additional tax obligations
- Wrong reporting of employee tax declarations
Testing payroll outcomes against ATO tax tables, ensuring employee TFNs are collected, and regularly updating withholding settings can significantly reduce risk.
Poor Record-Keeping Practices
Even if payroll calculations are accurate, inadequate documentation raises compliance concerns. Missing records relating to:
- Hours worked
- Termination payments
- Contractor agreements
- Variation explanations
These can cause complications during a review. Businesses should adopt structured digital record-keeping practices that maintain consistent access to supporting documents.
Conclusion
Avoiding ATO intervention begins with understanding risk points. STP Phase 2 strengthens transparency, but it equally heightens responsibility. By identifying common errors and embedding strong payroll controls, organisations can reduce the likelihood of triggering ATO reviews and ensure reporting remains compliant, accurate, and audit-ready.
