The digital age has gifted us with the ability to easily track…just about
anything. Unfortunately, that doesn’t mean everyone is tracking what they
could be to better inform decisions and improve performance.
Payroll is no exception.
It’s not enough just to watch wages and how many hours are tallied up at the
end of the week. You need to keep a close eye on all the areas that contribute
to your payroll spending.
Key performance indicators (KPIs) can help you both minimize costs and
prepare your global business with data needed to make strategic decisions.
But more than half of global employers, 56% of Deloitte survey respondents, either did not define any payroll KPIs or did not keep track of their KPIs consistently.
And that means that they are making some pretty big assumptions when it comes
to their financial health. Don’t get caught off guard—watch these payroll KPIs
closely to keep your global payroll on track.
1. Cost of payroll and labor expenses
Do you know how much really goes into your payroll costs? We’ll give you a
hint—it may be a lot more than you might think.
On top of the wages, taxes, and benefits you’re paying out each pay period,
many payroll professionals miss these related costs:
- Salary for payroll operations staff
- IT support for payroll processing technologies
- Company expenses like the cost to print checks
- Payroll accounting services
- The cost of software licensing for payroll systems and integrated HRMS
- Time spent on payroll processing, inquiries, and research
Global employers spend the most payroll processing time manually entering
data. Between entering timekeeping sheets by hand to entering adjustments, and
reconciling the data, it takes an average of four days or more to
complete the entire payroll process.
North American employers tend to have the shortest payroll cycles, averaging 2
to 3 days, while most other countries report longer cycles.
Differences in the definition of work weeks, statutory benefits, and pay
frequency usually account for the differences in how much time it takes to run
payroll from one country to another. For example, a bi-weekly pay schedule is
common in the U.S., while many other countries use a monthly payment schedule.
Top KPIs to track for cost:
- The average overall cost of producing a payslip
- Time spent on payroll-related activities
2. Payroll errors and corrective actions
Like any other area in your business, you’ll want to measure the productivity
and effectiveness of your payroll processes to identify cost-saving
improvements.
Despite best intentions, payroll errors happen.
And it’s no wonder why—there’s no shortage of complexity in payroll
processing. Every name on the payroll comes with a different set of variables,
opening you up to a number of errors.
For example, you’re working with differences in employee type, pay rates,
hours worked, leave entitlements, and tax withholdings that not only change
from one employee to the next but also from one payroll to the next.
Off-cycle payments or checks cut outside of a typical payroll cycle can also be a big drain on the efficiency of your payroll processes. Here’s why they happen:
- Terminations (30%)
- Missed or inaccurate human resource information (20%)
- Missed or inaccurate timekeeping (17%)
- Correcting underpayments (12%)
- Bonuses and awards (10%)
- Retroactive payment corrections (8%)
- Overpayment corrections (2%)
Top KPIs to track for efficiency:
- Payment errors as a percent of total payments
- Days to resolve payroll errors
- Off-cycle payments as a percent of total payments
3. Extra expenses related to staffing levels
We might be in the midst of unprecedented staffing shortages and elusive,
hard-to-find talent. But that doesn’t mean that payroll expenses have to
balloon in proportion.
Some of the most significant stresses on payroll budgets come from overtime,
turnover, and employee training. To control one, you need to control the
other.
One U.K.-based reporter found that upwards of 25% of all employees overwork by up to 10 hours per week—that can really add up.
If your company has 200 hourly employees and 50 of them are adding an extra 10
hours per week to your payroll, that’s another 500 hours per week. In the
U.S., that’s an average weekly payroll burden of $20,000 (based on a national average of $40 per labor hour). In the U.K., it’s an additional £12,350 (based on the national average payroll burden of £
24.70 per labor hour).
Besides getting tight on overtime, you can control excessive payroll
spending by understanding the relationship between the cost of employee
turnover and your payroll budget.
At first glance, you might not see what the two have in common. But for every
new hire, there are training costs and time to onboard. From hours spent in
training to the time your payroll staff spends manually entering new data, new
employees are very high touch.
And exiting employees aren’t any less intensive on administrative needs. You
might be cutting checks for off-cycle payments and submitting termination
paperwork to benefit providers. Each of these tasks takes its toll on the
total amount of time your payroll team spends.
In short, high turnover typically means more money spent on training, more
employees saddled with overtime, and a lot more administrative work for your
payroll department. Companies with less turnover tend to have greater
control over these expenses.
Top KPIs to track for staffing:
- Overtime as a percentage of total hours worked by department
- Total cost of overtime hours compared to the total cost of standard hours
- Total cost to train a new hire
- Total cost of turnover per position
- Time spent on turnover activities for payroll personnel
The bottom line on payroll KPIs for global businesses
Payroll may seem like a block-and-tackle sort of function in the business. But
the reality is that the payroll team has the opportunity to be a strategic
business function—both optimizing costs and informing strategic business
decisions.
If you haven’t already, it’s time to start tracking essential payroll KPIs.
And remember, when it comes to choosing the right payroll performance metrics,
good data includes both direct and indirect payroll costs.
Trying to get a handle on your payroll performance? Don’t miss this ebook :
Realizing strategic gains in finance and HR through efficient global
payroll.
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