It is essential to understand the distinction between closely held employees and salary and wages employees, especially in the context of Australia’s Single Touch Payroll Phase 2 reporting requirements. Closely held employees, a term often employed in family businesses, corporations, and trusts, refer to individuals who have a close association with the entity that compensates them. This group encompasses family members in family businesses, directors or shareholders of a company, and beneficiaries of a trust. The Australian Tax Office (ATO) has established specific rules for reporting payments to these individuals under Single Touch Payroll Phase 2, which vary from those for standard salary and wages employees.

What is a closely held employee?

A closely held employee is an individual who is directly related to the entity from which they receive payments – this can include family members of a family business, directors or shareholders of a company or beneficiaries of a trust.

Under Single Touch Payroll Phase 2, there are reporting requirements that slightly differ from a standard salary and wages employee. This includes how to report the payments, and also how often payments can be reported.

Firstly, how should we report payments to a closely held employee?

Type of amount

STP reporting required

Salary or wages

Yes – in scope for STP

Directors’ fees

Yes – in scope for STP

Distributions to a beneficiary of a trust

No – not in scope for STP

Dividends paid to a shareholder

No – not in scope for STP

Amounts that are a loan from the business

No – not in scope for STP

Source: Office, A.T.O [online] Available at: 

The Australian Tax Office outlines how each of these payments should be categorised where necessary. For example, salary or wages should be reported as gross (unless the employee receives some sort of allowance or overtime which would therefore be categorised appropriately), and Directors Fees (whether paid to a working or non-working director) should be reported as Directors’ fees. More information on additional payments can be found on the STP Phase 2 reporting – Quick reference guide on the ATO website.

When paying closely held employees, the ATO has set out three options for reporting single touch payroll data:

  • Reporting actual payments on or before the date of payment: you may wish to include this in your regular pay event, especially if your closely held employees are included in a payroll with your salary and wages employees
  • Reporting actual payments quarterly: Submitting a pay event through to single touch payroll each quarter, when your activity statement is due
  • Reporting a reasonable estimate on a quarterly basis: Make a reasonable estimate of the amounts you have paid during the applicable quarter and reporting that amount. However, this option is not as accurate as the first two in practice.

Choosing which reporting method you use should take into consideration how regularly you pay your closely held employees, if you also pay salary and wages employees, the support you have in place to meet these reporting obligations (e.g. if you need to visit your tax professional) and how you manage the payments of your other obligations, such as BAS or superannuation guarantee. The ATO does not require you to inform them of your choice of reporting method, however for your closely held employees this should be indicated via your payroll solution so that it reports correctly to the ATO.

What is a salary and wages employee?

Salary and wages employees make up the majority of the workforce. It covers the most common types of payments made to an employee, which includes salary and wages for employees that do not fall under the Closely Held Employee definition or other categories of income types as set out by the ATO.

Under Single Touch Payroll Phase 2, payments made to employees should be categorised correctly to ensure accurate reporting, following the outline provided by the Australian Taxation Office.

Payments can be reported in a number of ways, such as:

  • Directly from the payroll software
  • Through a third party sending service provider (SSP) which is integrated into your payroll software
  • Through a third party sending service provider which is outside of your software

However, the first option should always be considered as the majority of payroll software built to process Australian payroll should now have this option built into the software itself. If you are unsure of your software’s capabilities, you should check with your software provider to find out how single touch payroll is handled.

Single touch Payroll reporting for salary and wages employees is due on or before the pay day for your employees. The pay date is related to the payment date stipulated in the transaction of paying your employees. If you make out of cycle payments to your employees at any time, pay events should also be made on or before the pay day for these transactions.


In summary, with the introduction of Single Touch Payroll Phase 2 there are particular reporting requirements for employees that are regarded as closely held employees that differ from regular salary and wages employees. Not only should payment types be reported differently, along with the employee’s income type, but there are also different reporting schedules that can be considered when submitting this information to the Australian Tax Office.

About Employment Innovations

Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, workplace safety, legal services, payroll solutions, migration, human resource management and HR software.



The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.