Uncover Payroll Blindspots By Looking Into These 7 Metrics
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- Tracking payroll performance can help companies identify opportunities for cost savings, monitor workforce trends, and improve the employee payroll experience.
- An effective metric should follow the SMART model (specific, measurable, achievable, realistic, and time-based).
- Every payroll team should track the cost of payroll, the effectiveness of payroll, time to run payroll, payroll errors, overtime, employee leave, and training costs.
The payroll process is a necessary cost to the company, but it doesn’t need to be an expensive one. There are ways to save time and money by refining the payroll process using payroll metrics and key performance indicators (KPIs).
Payroll performance metrics are useful measurement tools for optimizing payroll. Human resource professionals and payroll managers can benefit greatly by using payroll KPIs—here’s how.
What is payroll performance?
Payroll performance refers to the payroll process’s effectiveness, efficiency, and accuracy in paying employees on time and in compliance with all relevant regulations and company policies.
Efficient and error-free payroll is important for business success and employee satisfaction, whereas poor payroll performance greatly impacts workers personally and professionally. An American Payroll Association survey suggests that nearly 70% of employees struggle to meet financial obligations if paychecks are delayed by a week.
Why should you measure payroll KPIs?
A KPI is a critical indicator of a project or team’s progress toward a goal. Payroll metrics have the important task of measuring the payroll process. An effective metric will use the SMART (specific, measurable, achievable, realistic, and time-based) model to bring about results.
By using payroll KPIs, the success of the payroll can be determined, and weaknesses can be improved.
Tracking KPIs is an important step in streamlining payroll processing, saving the company time and money. KPIs set the stage for strategic and operational improvement, providing an analytical basis for future decision-making.
Payroll KPIs have the potential to:
- Assess the current state of your payroll software’s reporting capabilities
- Enable you to run more accurate payroll
- Identify opportunities to save on labor costs and payroll expenses
- Highlight potential solutions for weaknesses
- Assist with timely payment
- Save the business money through optimization
- Monitor the financial impact of employee activities like overtime and absenteeism
- Improve the performance of the payroll system
7 payroll performance metrics to track
Now that you are familiar with the benefits of payroll, you need to know how to track them. Here are seven useful tracking metrics to incorporate.
1. Cost of payroll
The payroll process takes time, and time is money. Just as other business activities cost the company time and money, so does the payroll process.
Tracking the total cost of the process from start to end is an important metric to consider. There are aspects used to determine the cost of payroll.
These include the following:
- The financial cost of payroll errors
- Overtime paid out
- Salary of the payroll department
- Software used for payroll operations
Calculate these costs over a period of time and compare the total number of employees, the company size, and the payment schedule. In the end, the metric can be measured as the cost of payroll per employee or total payroll costs over a time period.
2. Effectiveness of payroll
The level of effectiveness and productivity of the payroll is an important metric. A standardized system should reduce friction. Yet sometimes, there are additional payments to be made and additional time needed to resolve unclean data.
Each deviation from the system can reduce the effectiveness of the payroll. Measuring productivity is beneficial to ensure that the payroll department is achieving a unified goal in a timely manner, with minimal error.
The efficiency of the payroll process can be determined by measuring certain details. Consider:
- Time to fix mistakes
- Number of retrospective payments
- Number of payments processed outside of the normal cycle time
3. Time to run payroll
The payroll process takes time, especially if done correctly. Although there are effective tools and software available to improve automation, it’s not an entirely instant operation. A valuable payroll metric is measuring the time it takes to complete each step in the process.
Assessing the time it takes will highlight inefficiencies and indicate room for improvement. Team members that work full-time on payroll can keep tabs on this metric by recording the number of hours spent completing payroll. Including reviewing data and fixing errors.
Take special note of variations that emerge throughout the year, and those that deviate from the expected cycle time. For example, during holiday breaks and flu season. Reducing the amount of time spent on the payroll through an effective system can improve the bottom line.
David Stepania, Founder, ThirstySprout
4. Number of errors
In an ideal world, all payroll data would be accurate payroll data.
A benchmarking review from American Productivity & Quality Center (APQC) reported that there is a noticeable gap between the time it takes for top performers to fix payroll inaccuracies compared to bottom performers. The most responsive organization resolves errors in a few days, while it can take up bottom performers as long as ten days.
Resolving errors takes time and, in turn, costs money. It can also be frustrating and debilitating for the employees waiting to be paid.
The accuracy rate of payroll is an important metric to track. It includes differences in salary type, accurate time tracking for hourly compensation, consideration of different employee leave categories, and tax and fee payments.
Rewarding employees for the extra hours they invest in the company is important. Equally important is the accurate tracking of these hours and other relevant labor metrics.
Effective communication and dependable technological tools will reduce mistakes and prevent extra overtime costs. Pay attention to emerging trends. For example, if a department consistently logs overtime, human resources may need to assess the workload or consider new hires.
The easiest way to track overtime is to add all overtime costs and compare the expenses according to the department and team. The time employees take for leave offers valuable insight.
6. Employee leave
A legally compliant company offers different types of leave for employees. Including annual leave, maternity leave, sick leave, and bereavement leave. Every hour an employee has time off of work while being paid is a cost to the company.
While this leave is owed to the employee, it needs to be recorded in the payroll process. Measuring the number of leave days taken during a certain period is an important metric in the payroll process.
Analyzing the patterns of employee leave will also reveal trends such as minimum, maximum and average number of leave days used. It will also highlight seasons of leave. This information could inspire adjustments in the workplace for enhanced efficiency.
7. Training costs
Hiring new employees is an investment and an important staffing cost. It costs money to train staff, despite productivity being lower than ideal. Incorporate training costs as a payroll metric to determine the average amount of time to train new hires. Determine whether there are ways to reduce the cost.
One of the easiest ways to produce this metric is to divide the total training cost by the number of trainees. These costs include the likes of instructors, equipment, time, and travel.
A well-structured training period will offer long-term benefits and reduce turnover rates. Identifying a return on this investment is possible by analyzing certain metrics.
How to apply payroll metrics effectively
For KPIs to be effective, they need to be applied properly. There are a few key details to consider when setting metrics and using them to monitor performance management.
- Define the metrics using the SMART model
- Determine benchmarks or targets for the KPIs
- Ensure you have buy-in from the rest of the payroll team
- Understand the payroll data that needs to be gathered
- Take time to measure the results and share them with the payroll department
- Consistently revise metrics and make room for improvement
If you want to leverage the potential of payroll performance, consider implementing a professional platform or outsourcing payroll to a payroll provider, such as Deel. Payroll professionals work in harmony with these tools to improve the process.
Marieke Sneep, Head of People, Solar Monkey
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