One of the most significant advantages of global payroll automation and system integration is our ability to monitor and measure the performance of those systems and how we use them to improve not just payroll, but overall organizational success. Key Performance Indicators (KPIs) are the data that drives efficiency and optimization within companies, and the numbers drawn from the payroll function are some of the most important for any organization.
These are not measurements taken for measurement’s sake. KPIs are valuable because they align with company goals and help inform strategic plans and decisions. As such, it's important to revise your KPIs as business objectives evolve over time. The most widely used payroll KPIs measure, in broad terms, cost, productivity, efficiency, and compliance, and can be as broad as total payroll cost per period or as granular as benefit cost per employee in December in Vietnam.
Assuming you monitor the essentials, and are sure to account for time and resources used outside of the payroll team, you should have a broad, nuanced perspective of your payroll performance and its implications on overall company activity. However, some KPIs are more significant than others, offering unique insight into important aspects of your operations that you may not learn otherwise. Here’s a look at four of these critical KPIs and how they can benefit your organization.
Cycle Time to Resolve Errors
It’s easy to focus payroll KPIs on costs. However, while those numbers are obviously important for calculating the bottom line, they ignore the fact that payroll as a function is a service department first—and its customers are your employees. A recent benchmarking review from the American Productivity & Quality Center (APQC) revealed a wide gap between the time it takes top versus bottom performers to fix payroll errors, with the most responsive organizations resolving errors in as few as two days and the worst performers taking up to 10 days to fix things.
For the employee dependent on their paycheck for bills and essentials, 10 days is way too long. Of course you want the time to resolution to be as swift as possible to keep employees happy and your payroll operations on track, but there are additional insights to be gleaned from this KPI.
A lengthy time for error resolution could indicate a staffing issue in payroll, such as too few staff for the workload, an inefficient process, insufficient training, or data issues upstream. Depending on the number of errors reported each period (another KPI to monitor), the costs of fixing errors could be bloating your overall payroll costs and impacting other metrics. Additionally, the stress of prolonged error resolution could impact satisfaction for both the payroll professional and the affected employee, as well as possibly their supervisor, someone in IT, maybe HR, and anyone else involved in the resolution.
There’s a lot to be learned about any organization from its turnover rates, but knowing the total, average, and per position cost of turnover is key to managing your workforce. This includes the total costs of separation, vacancy, recruitment, and onboarding. Some positions are naturally easier to fill, which could result in lower turnover costs. However, some of those quickly filled jobs could require a good deal of training, which would raise the overall cost of having to replace a lost employee.
The key insights here lie in the data gathered from positions that take longer to fill, whether because they’re upper management level or require specific skills and experience. Between the time an employee leaves one of these roles and the time another person is hired and trained, there can be considerable costs incurred in the form of staff and resources borrowed from other roles and departments to compensate for the missing employee. Again, that can have ripple effects on the performance of those people in their primary roles. Understanding how those costs amass and what they are can help organizations plan for unexpected or challenging turnovers.
Master Data Accuracy
The carrot on the stick of any process improvement initiative for global payroll is absolute accuracy in your payroll runs. It doesn’t happen, but it remains our aim throughout every pay period. Perhaps the one aspect of the payroll process over which we should have the greatest control is the accuracy of our master data, which is why this KPI is essential.
Between advances in payroll automation and better integrations with HCM and other systems, we’ve come a long way from manually updated spreadsheets and data transfers. If your organization uses a unified global payroll solution, you have a better chance than ever before of maintaining accurate master data. A high degree of inaccuracy, therefore, signals an issue somewhere that can and should be fixed.
Changes will always happen, and at the last minute, but the possibility of maintaining a single source of truth for your payroll and human resource data has never been greater. Working toward that is an ongoing investment in your organization’s overall productivity.
Personal Tasks Overdue
At the head of an organization’s largest cost center, the payroll team itself is typically subject to cold metrics that appear aimed solely at cutting costs. Yet the reasons for payroll costs are often not directly within the control of the payroll team. It’s important for company leadership to evaluate the scope of the work performed by payroll when analyzing numbers such as errors reported, accuracy rates, and supplemental runs.
A key indication of your payroll team’s capacity for the work required is the percentage of personal tasks that remain overdue every period. A deeper examination of this number can reveal overtasked employees, training needs, automation opportunities, and a host of other insights than can dramatically affect your payroll performance. And because payroll is generally the largest expense for an organization, making up anywhere from 50 to 70% of overhead, any opportunity to optimize your payroll team’s performance is uniquely valuable.
Key Insights for Performance Payroll
As organizational leaders come to understand the value of the information contained in their global payroll data, they will seek out the kinds of unique and wide-reaching insights provided by KPIs like the ones listed above. The ongoing value of any set of KPIs is their ability to inform business actions, and it's important to revisit your KPIs as your organization changes. For many CloudPay customers, we'll propose a different set of KPIs throughout their first few years, and typically revise performance indicators whenever a customer goes through a major change, such as an acquisition.
With greater visibility and access to real-time data and performance results, payroll professionals are becoming better equipped to offer detailed assessments and recommendations for improving payroll operations. In doing so, payroll managers are able to make valuable contributions to their organization’s performance and future goals.
A version of this story was originally written for GPMI.