How payroll can track success with KPIs

As a Canadian payroll professional, KPIs (key performance indicators) may not be the highest priority on your list. In fact, PwC Canada's Future of Payroll (2020) reported: “Only 44% of small organizations and 49% of mid-sized organizations track KPIs. However, in large organizations where payroll typically plays a more strategic role, 64% of organizations track KPIs.”

Metrics help shape your success and meeting your goals makes you look good. That’s why it’s essential for you to create and track key KPIs to effectively demonstrate to your organization (no matter what size you are) that your objectives are being met or exceeded, and that you aren’t losing money to inefficiencies.

What exactly are KPIs and why do they matter to the payroll department?

KPIs are performance measurements used to track your organization’s processes and analyze costs. In payroll, KPIs show the accuracy of your process and help you to avoid any payroll inaccuracies that could impact company resources, affect employee satisfaction, or even lead to fines.

Accurate payroll processes not only provide an indicator of how well you perform but also act as a cost-benefit analysis for compensation-related costs.

Determine the true cost of your payroll

To get a clearer picture of what KPIs to measure for, you may want to start with what it costs to run payroll for your company. Consider all the salaries of people in your organization who contribute to your payroll processes – the staff who complete timesheets for payroll input, payroll accounting, IT support, HCM software support, payroll admin and managers etc.

To figure out what your payroll costs are as a percentage of revenue, divide your total payroll expenses by your total revenue.

If you want to know what the cost of your payroll is per employee, take your payroll expenses total and divide it by the number of employees you run payroll for.

Reduce errors and aim for accuracy

Fact: “90% of organizations spend less than 25% of their time investigating and correcting errors"

PwC Canada, Future of Payroll (2020)

In payroll land, errors can lead to serious consequences. That’s why it’s essential for payroll professionals to find every error and correct it as soon as possible. Every payroll performance KPI depends on the accuracy of your payroll data. Before you can use KPIs to analyze the full effects of your payroll performance, you need to ensure that your current payroll process is reliable.

To ensure your payroll data is accurate, payroll admins need to account for the following variables:

  • Salary types (salary, hourly, commission, contractor, etc.)
  • Accurate time tracking for hourly compensation
  • Leave categories including paid time off, maternity leave, sick leave, bereavement, etc.

Keep track of payroll errors per pay period. To arrive at a payroll accuracy percentage, divide the number of payroll runs with errors by the total number of payroll runs.

Measuring productivity

Productivity metrics can improve your entire department! This is a place where you can look at specific areas of your efficiency, output, and individual performance.

The best way to measure productivity is to compare the ratio of payroll employees to your number of employees. You can use the following list of metrics to identify issues affecting productivity:

  • Amount of payments processed per payroll processor
  • Number of payments processed outside of the normal payroll cycle
  • Total retrospective payments
  • How much time it takes to resolve input issues

Measuring efficiency

If you’re already measuring for productivity, it only makes sense to measure your efficiency as a department too!

These metrics can tell you if your payroll operation is achieving goals on time and what factors could be affecting your performance:

  • Payroll errors (including overpayments)
  • Payroll questions and response times
  • Time spent on integration and maintaining your HCM solution or people management technology stack
  • Automation and time spent on forms, workflows, employee self-service, reporting, payslips, tax slips, ROEs, etc.
“40% of the payroll KPIs monitored by Canadian organizations deal with the timeliness of processes (e.g., response times for payroll inquiries, timely remittances), while 30% focus on the accuracy of payroll, and 30% deal with payroll operational costs.”

PwC Canada, Future of Payroll (2020)

Other metrics to consider for payroll KPIs

Overtime

To determine the amount of time spent on overtime, add up the total overtime costs paid out, then analyze payroll costs by individual departments and teams. Be sure to measure how much time your team spent on calculating overtime wages. This amount will help you to make informed decisions about staffing, employee workload, overtime schedules, and your hiring needs.

Training costs

Onboarding and training new employees is an expensive, but necessary part of your business.

To arrive at this payroll metric, divide the total training cost by the number of trainees throughout the process. Keep in mind your total training cost should include the cost for senior staff time (the trainers), facilities, equipment, and any travel or food expenses.

By breaking down each cost you can identify areas where you can save or look for process improvements (or technology) to not only reduce the overall cost, but also positively impact some of the other KPIs we mentioned earlier.

Get measuring to get better

KPIs work best when they align with specific processes and challenges. Whether you’re a scaling organization looking to improve as headcount increases or a larger operation looking for future growth opportunities, these key payroll performance metrics will help ensure your organization’s payroll process allocates resources correctly while fully supporting your employees.

Learn how the accounting and payroll teams at Westcorp leveraged their Canadian payroll system to decrease their payroll processing costs by 45%, and increase productivity and efficiency.