In a world where numbers and metrics determine success, it’s essential to develop and track key performance indicators (KPIs) to show that business objectives are being achieved efficiently.
Organisations use high-level KPIs to focus on the overall performance of the business. Meanwhile, low-level KPIs are prominently used to target processes in different departments such as finance, payroll and HR.
Whether you’re a standalone employee or part of a larger payroll team, these payroll performance metrics will provide you with the knowledge to track the success of key business objectives, ensure payroll resources are distributed correctly and help support your employees.
What are payroll KPIs?
In short, payroll KPIs are performance measurements that track processes and analyse respective costs to indicate the full accuracy of the process. While many businesses use different payroll metrics, it’s vital to track the fundamental KPIs to avoid any payroll inaccuracies that impact company resources and affect your people.
Building a foundation of accurate payroll processes will not only provide an indicator of how well they are performing but act as cost-benefit analysis for any of your business’ compensation-related costs.
The Cost of Payroll
Ever wondered how much your entire end-to-end payroll process costs your organisation? The cost of payroll metric will analyse the total spend and provide you with ideal solutions to make running payroll less expensive.
To determine your true payroll cost, you need to consider all the people in the organisation that contribute to any element of your payroll processes. This can range from the salaries of staff who compile timesheets for input, payroll accounting costs and any company expenses. Below is a full list of factors that could be identified to determine your cost of payroll.
• The salary of staff who complete timesheets for payroll input.
• IT support relevant to any payroll processing.
• Company expenses.
• Payroll accounting costs.
• Implementing and maintaining HRMS software or related systems.
• The salary of management for time spent on payroll processing and enquiries.
• The salary cost for time spent on any transactional payroll processing.
At the end of the day, how you create the cost of payroll metrics depends on exactly what you’re looking to get out of the data. If you want to see your payroll costs as a percentage of revenue, divide your total payroll expenses by your total revenue. Whereas, if you want to know the cost of payroll per employee, take your total payroll expenses and divide it by the number of employees you ran the payroll for.
Productivity & Effectiveness
A metric which can improve every aspect of the payroll department is productivity. Here, you’ll look into the specifics of the payroll departments productivity, while identifying individual performance and contribution. The standardised way to measure productivity is to compare the ratio of payroll employees to the number of employees being serviced. To aid your measurement, here’s a list of metrics which help identify any issues affecting productivity.
• The number of payments processed per payroll processor
• The number of payments processed outside of the normal payroll cycle.
• The number of retrospective payments.
• The time it takes to resolve input that contains unclean data.
While measuring productivity, it’s also widely considered beneficial if effectiveness metrics are evaluated in correlation. Effectiveness intends to outline whether your payroll department is achieving its desired outcomes within a timely manner and provides the factors that could be influencing how effective an employee is.
• Any payroll errors including overpayments
• Payroll enquiries vs the time it takes to respond to them.
• How much automation is involved in the processes i.e. forms/transactions, employee self-service, reporting, payslip production.
• The overall time for integration and maintenance of HMRS and related systems.
As shown, there are numerous ways metrics can help you to track and analyse the productivity and effectiveness of your payroll process, and it’s important to think about the unique methods which are central to your business that will show you how to reduce the amount of time and money spent on these processes.
Overtime
According to the Independent, one in four employees overwork by at least 10 hours each week. With this, overtime carries the potential to stress and wear down employees, providing increased pressure on payroll to ensure no mistakes are encountered when calculating overtime costs to reward their people.
The most efficient way to calculate this metric is to add up the total overtime cost paid out, then analyse payroll cost by departments and teams. Whilst doing this, you’ll be able to measure how much overtime employees work and equally, the time spent on calculating overtime wages.
Once you are positive you have the hours counted correctly, you’ll be able to make informed decisions based on staffing, reducing employees’ workloads, altering overtime schedules and identifying the need to hire more staff. Likewise, you can pinpoint if there are any performance measures your team can take to become more effective when calculating overtime.
Employee Leave
Employee absence costs UK businesses over £14 billion each year, which is astonishingly £554 per employee. This cost justifies the importance of monitoring employee absenteeism in order to make workplace adjustments that can radically reduce costs and improve productivity.
While some companies report on their sick pay, the other direct costs related to absences are often overlooked and unrecognised. Statutory sick pay is an excellent example of this, to work out an employee’s SSP, follow the example below.
The weekly rate (£94.25) is divided by the number of qualifying days in a week and multiplied by the number of days for which an employee is entitled to. For example, an employee was off sick for 7 qualifying days (of which SSP will be paid for 4 of them). Therefore, the sum to calculate the employee’s SSP entitlement looks like this:
£94.25 / 7 qualifying days = £13.46 of SSP per day.
£13.46 x 4 days = £53.84 in SSP.
Training costs
Throughout the onboarding process, training new employees can be expensive. While it will provide many long-term benefits for your organisation, the initial cost and productivity levels of employees throughout training can be detrimental.
To generate this key payroll performance metric, simply divide the total training cost by the number of trainees throughout the process. It’s vital to remember the total training cost should include the costs for instructors, facilities, equipment, travel, hospitality, food and the total time it takes to train new hires.
Once you’ve got a clear image of each cost, you’ll be able to identify ways to reduce expenditure by eliminating elements or transitioning to new processes to reduce the overall cost.
Number of errors
In the life of a payroll professional, it’s crucial to eliminate all the errors from their process. If not, each and every mistake can lead to serious consequences for the entire organisation. We’ve listed five different payroll KPIs up until this point, but you’ll never be able to use them to full effect and gain accurate data if your processes are riddled with errors. To ensure an accurate payroll process, consider the elements listed below.
• Tax and fee payments across each level.
• Accuracy of time tracking for hourly compensation.
• The differences in salary types i.e. hourly, commission, contractor.
• Applications for all the different types of leave categories i.e. maternity, sick leave.
Whilst these are efficient ways to avoid errors and improve payroll performance, Natural HR’s fully integrated payroll engine provides everything you need to ensure your people are paid on time while easily building up to an employee’s final gross pay and automatically producing payslips.
