Payroll KPIs: 3 Things You Should Track

The digital age has gifted us with the ability to easily track…just aboutanything. Unfortunately, that doesn’t mean everyone is tracking what theycould 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 theend of the week. You need to keep a close eye on all the areas that contributeto your payroll spending.

Key performance indicators (KPIs) can help you both minimize costs andprepare 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 comesto their financial health. Don’t get caught off guard—watch these payroll KPIsclosely 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 ahint—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 enteringdata. Between entering timekeeping sheets by hand to entering adjustments, andreconciling the data, it takes an average of four days or more tocomplete the entire payroll process.

North American employers tend to have the shortest payroll cycles, averaging 2to 3 days, while most other countries report longer cycles.

Differences in the definition of work weeks, statutory benefits, and payfrequency usually account for the differences in how much time it takes to runpayroll from one country to another. For example, a bi-weekly pay schedule iscommon 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

Related content: Realizing strategic gains in finance and HR throughefficient global payroll

2. Payroll errors and corrective actions

Like any other area in your business, you’ll want to measure the productivityand effectiveness of your payroll processes to identify cost-savingimprovements.

Despite best intentions, payroll errors happen.

And it’s no wonder why—there’s no shortage of complexity in payrollprocessing. 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 changefrom 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 toballoon 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 theother.

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 10hours per week to your payroll, that’s another 500 hours per week. In theU.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 payrollspending by understanding the relationship between the cost of employeeturnover and your payroll budget.

At first glance, you might not see what the two have in common. But for everynew hire, there are training costs and time to onboard. From hours spent intraining to the time your payroll staff spends manually entering new data, newemployees are very high touch.

And exiting employees aren’t any less intensive on administrative needs. Youmight be cutting checks for off-cycle payments and submitting terminationpaperwork to benefit providers. Each of these tasks takes its toll on thetotal amount of time your payroll team spends.

In short, high turnover typically means more money spent on training, moreemployees saddled with overtime, and a lot more administrative work for yourpayroll department. Companies with less turnover tend to have greatercontrol 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. Butthe reality is that the payroll team has the opportunity to be a strategicbusiness function—both optimizing costs and informing strategic businessdecisions.

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 globalpayroll.