STP Phase 2 Income Type Coding and Payday Super Compliance in Australia 2026: A Bookkeeper Guide

Since the rollout of Single Touch Payroll Phase 2 and the introduction of Payday Super from 1 July 2026, the accuracy of income type coding in Australian payroll has never mattered more. A misclassified income type is no longer just a reporting error — it can trigger an automatic Superannuation Guarantee Charge (SGC) liability, ATO data-matching flags, and penalties for employers. For Australian bookkeepers, mastering STP Phase 2 income type codes is now a core compliance skill.

Understanding STP Phase 2 Income Type Reporting

Under STP Phase 2, employers can no longer report a single gross payment figure to the ATO. Every payment must be disaggregated into specific components and assigned to a defined income type. This granular data allows the ATO to calculate each employer's superannuation guarantee (SG) liability in real time and cross-reference it against actual contributions received by employees' super funds via SuperStream.

The shift from STP Phase 1 to Phase 2 was significant: where Phase 1 required a gross total, Phase 2 requires a breakdown of base salary, overtime, allowances, bonuses, paid leave, and termination payments — each mapped to the correct income type code.

From 1 July 2026, this data is also the mechanism through which the ATO enforces Payday Super. Every pay event triggers an automatic calculation of the expected SG contribution, which is then matched against the SuperStream clearing house record. Errors in income type coding can cause the ATO's system to calculate the wrong SG liability, creating discrepancies that generate compliance notices.

The Key Income Type Codes Every Bookkeeper Must Know

The ATO defines a specific set of income type codes that must be applied to every payment reported through STP Phase 2. Bookkeepers must understand when each code applies and the consequences of misclassification.

• SAW (Salary and Wages) — The default code for standard employees receiving ordinary salary, wages, bonuses, and most allowances. The vast majority of Australian payroll transactions will use SAW. Payments coded as SAW are subject to the full SG rate of 11.5% (rising to 12% from 1 July 2025).
• WHM (Working Holiday Maker) — Required for employees holding a subclass 417 or 462 visa. WHM income is taxed at a flat 15% on the first $45,000 and at higher marginal rates above that threshold. Misclassifying a WHM as SAW will result in incorrect PAYG withholding and potential ATO penalties.
• CHP (Closely Held Payees) — Applies to directors, shareholders, and family members employed in private companies who are paid irregularly or on a different reporting cycle. CHP payees may be reported quarterly rather than per pay event, but must still be finalised by 30 September each year.
• LAB (Labour Hire) — Used for payments made through labour hire arrangements where the labour hire firm is the employer for STP purposes. Misclassifying a labour hire arrangement as SAW can create duplicate SG obligations.
• OSP (Other Specified Payments) — A residual category for specific regulatory payments that do not fit other income types. OSP payments are generally not subject to SG, so incorrectly coding ordinary earnings as OSP will cause the ATO's Payday Super system to calculate zero SG liability — a serious compliance failure.
• FEI (Foreign Employment Income) — For Australian residents working overseas whose income is subject to foreign tax. FEI reporting requires a valid ISO 3166-1 country code; using "NA" as a placeholder is a common error that triggers ATO validation failures.
• IAA (Inbound Assignees to Australia) — For foreign employees temporarily working in Australia under an international assignment arrangement. IAA income has specific tax treaty implications that affect PAYG withholding calculations.

How Income Type Errors Trigger Payday Super Penalties

The connection between income type coding and Payday Super compliance is direct and automatic. When an employer lodges an STP event, the ATO's system calculates the expected SG contribution based on the income type and payment components reported. This expected amount is then matched against the SuperStream contribution record.

If ordinary earnings are incorrectly coded as OSP, the ATO's system will calculate zero expected SG — but the super fund will still receive the actual contribution. This creates a mismatch that can trigger an audit flag. Conversely, if non-SG-liable payments are incorrectly coded as SAW, the ATO may calculate an SG liability that the employer has not paid, generating an automatic SGC assessment.

From 1 July 2026, the SGC applies from the first day a contribution is late, with the charge calculated at the SG shortfall amount plus interest (currently 10% per annum) plus an administration fee of $20 per employee per quarter. For employers with multiple employees and systematic coding errors, these penalties can accumulate rapidly.

Common Bookkeeper Mistakes in Income Type Coding

Several recurring errors appear in ATO compliance reviews of STP Phase 2 data. Bookkeepers should actively check for these issues in every payroll configuration.

• Using SAW for all payments by default — Many payroll software configurations default all pay items to SAW. Bookkeepers must review each pay item category and assign the correct income type, particularly for labour hire, working holiday makers, and closely held payees.
• Incorrect allowance classification — STP Phase 2 requires allowances to be reported under specific allowance type codes (such as CD for cents-per-kilometre, TD for tools, and LD for laundry). Lumping all allowances into a single "other allowances" category prevents the ATO from correctly assessing whether each allowance is subject to SG.
• Mishandling income type changes mid-year — When an employee's circumstances change (for example, a working holiday maker who obtains permanent residency), the income type must change from WHM to SAW from the date of the status change. Payroll software that does not support multiple income types per payroll ID may require a new payroll ID to be created, resulting in two separate income statements in the employee's myGov account.
• Using placeholder country codes — For FEI and IAA income types, a valid ISO 3166-1 alpha-2 country code is mandatory. Using "NA" (the code for Namibia) as a shorthand for "not applicable" is a common error that causes STP lodgement failures.
• Failing to review software defaults after updates — Payroll software providers periodically update their STP Phase 2 configurations. Bookkeepers should review pay item mappings after every software update to ensure that income type assignments have not been reset or changed.

Australian Regulatory Context

STP Phase 2 income type reporting obligations are established under the Taxation Administration Act 1953 and the ATO's STP Phase 2 Employer Reporting Guidelines. These guidelines are not optional — they define the mandatory data fields and coding requirements for every STP-enabled payroll submission.

The Tax Practitioners Board (TPB) regulates BAS agents, including bookkeepers who provide BAS services. Under the Tax Agent Services Act 2009, BAS agents must maintain competency in the services they provide. Systematic income type coding errors that result in client penalties may constitute a breach of the Code of Professional Conduct, potentially affecting a bookkeeper's TPB registration.

The ATO's Payday Super framework, effective from 1 July 2026, uses STP Phase 2 data as its primary compliance mechanism. The ATO has indicated it will take a "reasonable approach" to genuine errors in the first year of Payday Super, but expects employers and their bookkeepers to have correct income type configurations in place from day one.

The Fair Work Act 2009 also intersects with income type coding through its requirements for accurate pay records. Employers must maintain records that correctly reflect the income type and payment components for each employee, and these records must be available for Fair Work Inspector review.

Practical Checklist for Bookkeepers

Use this checklist to audit your clients' STP Phase 2 income type configurations before each payroll run and at the start of each financial year.

• Review the income type assigned to every pay item in the payroll software — do not rely on software defaults.
• Confirm that all working holiday maker employees are coded as WHM, not SAW, and that their visa subclass is recorded.
• Verify that closely held payees (directors, family members) are coded as CHP and are on the correct reporting cycle.
• Check that all allowances are assigned to the correct allowance type code, not lumped into a generic "other" category.
• Confirm that any employees whose income type changed during the year have been correctly handled — either through a mid-year income type change or a new payroll ID.
• Verify that FEI and IAA income types include a valid ISO 3166-1 country code, not a placeholder.
• After any payroll software update, re-check all pay item income type mappings to confirm they have not been reset.
• Reconcile the SG liability calculated by the payroll software against the actual SuperStream contributions for each pay run.

How MyMoney® Can Help

STP Phase 2 income type coding is a technical discipline that requires both payroll software expertise and a thorough understanding of ATO reporting requirements. Not all bookkeepers have kept pace with the complexity of Phase 2 and the Payday Super changes — and the cost of errors is now higher than ever.

MyMoney® connects Australian businesses with qualified bookkeepers who are registered BAS agents with demonstrated expertise in STP Phase 2 compliance, Payday Super reconciliation, and payroll software configuration. Whether you need a one-off payroll audit or ongoing bookkeeping support, our marketplace helps you find the right professional.

Post a Brief to describe your payroll compliance needs and receive proposals from vetted bookkeepers. Or Browse Bookkeepers on the MyMoney® Marketplace to find a registered BAS agent with the STP Phase 2 expertise your business requires.