As a payroll professional, KPIs may not be your highest priority. In fact, Pricewaterhouse Cooper’s (PwC) Canada 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.”
It’s time to change that. Creating and tracking key KPIs demonstrates your value and impact on organizational efficiency. They help you show your objectives are being met (or exceeded) and that you’re finding new ways to decrease inefficiencies and increase cost savings.
KPIs and why they matter to payroll
KPIs are performance measurements used to track your organization’s processes and analyze costs. In payroll, KPIs show the accuracy of your processes and help you to avoid 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.
How to determine the true cost of your payroll
To get a clearer picture of what KPIs to measure, 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.
Errors & Accuracy
In payroll, 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 value 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- 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.
“90% of organizations spend less than 25% of their time investigating and correcting errors. 62% of organizations spend less than 10% of their time on error processing.''
– PwC Canada, Future of Payroll (2020)
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.
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
If you’re measuring productivity, it only makes sense to measure your efficiency as a department too.
These metrics can tell you if your payroll department 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
- Automation and time spent on forms, workflows, employee self-service, reporting, payslips 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)
Measuring the time to run payroll
Measuring how long the payroll process takes lets you know the expenses involved and helps you find new efficiencies. Without a doubt, working with modern payroll software will speed up your payroll processing. On average, Avanti clients report that Avanti’s payroll tools save them anywhere from 25-50% of their time running payroll. That’s significant when you think about how that reduction in time saves organizations thousands per year.
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.
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 new processes (or software) to reduce the overall cost.
KPIs work best when they align with specific processes and challenges you have. Whether you’re a small business looking to improve or a larger operation looking for growth opportunities, these key payroll performance metrics will help ensure your organization’s payroll process allocates resources correctly while fully supporting your employees.
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