With the expansion of Single Touch Payroll Phase 2 in Financial Year 2020, employers were required to expand their payroll reporting to the Australian Taxation Office (ATO) to include additional information. The aim of this was to reduce the reporting burden for employers to provide information to multiple government agencies, and required employers to provide information on categorised payment types made and also income types. This changed the way employers report payments made not only to regular salary and wages employees but also closely held employees.

What is a closely held employee?

A closely held employee is an individual that is considered to be directly related to the entity that is paying them.  This can include family members of a family business, directors or shareholders of a company or beneficiaries of a trust. An employee that receives salary or wages does not fall under the category of a closely held employee.

Under Single Touch Payroll Phase 2, there are reporting requirements for closely held employees 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.

Rules of STP Reporting Payment Types for Closely Held Employees

Closely held employees can receive a range of payments from the entity that is paying them, and there are rules for reporting these payments via Single Touch Payroll on how these should be classified.

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] www.ato.gov.au. Available at: https://www.ato.gov.au/Business/Single-Touch-Payroll/Concessional-reporting/Closely-held-payees/ 

In addition, the type of payment made that requires reporting must be allocated to the correct STP reporting classification. Some examples of payments Closely Held Employees can receive and their respective reporting classifications are outlined below:

Type of amount

STP reporting classification

Salary or wages (such as Ordinary Hours)


Directors’ fees – working or non-working director

Directors’ fees

Bonus – ex-gratia, in respect of ordinary hours of work

Bonus and commission

Allowance – car – flat rate

Other allowances (allowance type OD) with the description V1 (Private vehicle)

Leave Taken – Annual Leave, Personal Leave, Long Service Leave

Other paid leave (paid leave type O)

The above are payments that a Director could receive depending on the nature of their engagement, however is not limited to the above list. More information can be found on the Australian Taxation Office’s Quick Reference Guide.

Reporting requirements for Closely Held Employees

Payments made to closely held employees must be reporting through Single Touch Payroll. However, unlike standard salary and wages employees, this does not necessarily need to be made on or before each payday.

Small employers (employers that have 19 or less employees) have the option to report closely held employees with each pay cycle, or on a quarterly basis.

Employers with 20 or more employees must report closely held employees with their salary and wages employees – i.e. with each pay cycle.

Each Single Touch Payroll report must include amounts paid to your closely held employees, broken down by classifications as mentioned above. The Single Touch Payroll report must also include pay as you go (PAYG) withholding, any reportable deductions and super guarantee obligations.

The three options for reporting closely held employees is described in detail below:

  • Report actual payments on or before the date of payment – whenever you make a payment to a closely held employee, you opt to report the information on or before each pay event.
  • Report actual payments quarterly – report your actual payments to closely held employees on a quarterly basis. Each quarter, when your activity statement is due, you would then report all payments made in that quarter.
  • Report a reasonable estimate quarterly – make a reasonable estimate of the amounts you have paid to closely held employees during the quarter and report that amount through STP. PAYG and SG contributions should be paid based on this estimate, however estimates should be adjusted if circumstances change to ensure employers are not underpaying or overpaying their obligations and mitigate the risk of penalties if estimates are too low or high.

If employers choose a quarterly reporting option, the STP report is due on or before the due date of quarterly activity statements. If PAYG withholding is reported on monthly activity statements, your quarterly STP report, including amounts paid to your closely held payees, is due on the same day as your activity statement for the final month of the quarter. If there are concessional or deferred due dates in please, the STP report is due as at the later activity statement due date.

However, choosing a quarterly option does not change or alter the due date for:

  • reporting and paying your PAYG withholding on your activity statement
  • making SG contributions for your closely held payees.

Employers must take into account some considerations when electing a reporting method which may depend upon their business operations. This could include:

  • how regularly closely held employees are paid that would be reported through STP
  • whether salary and wages (arm’s-length employees) are paid that you need to report through STP
  • the support in place to meet reporting obligations (like scheduled visits with a tax professional)
  • how payments of other obligations are managed (like amounts reported on an activity statement or superannuation guarantee)

Due to the above, many employers elect to report their closely held employees with their regular pay cycle if salary and wages/arm’s-length employees are also being paid.

How Single Touch Payroll Reports should be Reported

Single Touch Payroll reports for closely held employees must be lodged through an STP-enabled solution, just as this would take place for regular employees. This can be done by the employer directly, or using a registered agent who would lodge it on your behalf (such as using an outsourced payroll solution).

Single Touch Payroll cannot be lodged directly through the ATO online services or on an activity statement.


Closely held employees, encompassing family members, directors, shareholders, or trust beneficiaries, now face distinct reporting rules under Single Touch Payroll Phase 2. These rules classify various payment types, such as salary, directors’ fees, and bonuses, with specific reporting requirements. The need for accurate classification ensures transparency and compliance within the payroll reporting framework.

The choice between reporting options involves careful consideration of business operations, payment frequency, and support systems in place for meeting reporting obligations. This decision-making process plays a crucial role in ensuring compliance with Single Touch Payroll requirements and avoiding penalties associated with inaccurate reporting.

Regardless of the chosen reporting method, Single Touch Payroll reports for closely held employees must be submitted through an STP-enabled solution, either directly by the employer or through a registered agent. This emphasizes the importance of adopting modern payroll solutions to seamlessly integrate with the evolving reporting landscape.

As employers navigate these changes, the key takeaway is the need for diligence and adaptability in adhering to Single Touch Payroll Phase 2 requirements. By embracing these adjustments, businesses can not only fulfill their reporting obligations efficiently but also contribute to the broader goal of simplifying payroll processes and enhancing transparency in the Australian payroll landscape.

About Employment Innovations

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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.