This is part of our Payroll and STP Phase 2 series (Chapter 5 of the Xero tutorial hub):

• Lesson 1: Setting Up Xero Payroll and Connecting to the ATO
• Lesson 2: Adding Employees to Xero with STP Phase 2 Details
• Lesson 3: Running Your First Pay Run in Xero
• Lesson 4: Superannuation and Auto Super in Xero
• Lesson 5: STP Phase 2 Pay Items and Leave Categories in Xero
• Lesson 6: End of Year STP Finalisation in Xero

STP Phase 2 requires more detailed breakdowns of pay than the old system, and getting the mapping right avoids reporting errors down the track.

1. What changed with Phase 2

Rather than reporting one gross pay figure, STP Phase 2 requires pay broken down into categories like ordinary hours, overtime, allowances, and bonuses separately.

2. Mapping your pay items

Each pay item in Xero needs to be assigned to the correct ATO reporting category so it is reported correctly.

3. Setting up leave categories

Leave types also need correct categorisation, particularly things like paid parental leave or workers compensation, which are reported differently to ordinary leave.

4. Checking an existing setup is correct

If your payroll was set up before STP Phase 2, it is worth a review to confirm everything maps correctly rather than assuming it carried over cleanly.

Xero’s official YouTube channel has STP Phase 2 resources: watch the official Xero tutorial. Our registered BAS agents can review your pay item mapping for you.