The goal, therefore, is to foster continuous improvement in payroll processing.
But how do you make that possible?
By setting up payroll key performance indicators (KPIs) and then monitoring those factors, you can create a cost-effective, accurate and efficient payroll—no matter where your company operates.
What Are Payroll KPIs?
Key performance indicators are payroll metrics that businesses can use to measure progress toward an intended goal. They allow you to focus on factors that impact or signal strategic and operational performance. Armed with that information, a company can make the most informed strategic decisions and focus on the optimal practices for improving business activities.
How do you get the most out of your payroll KPIs?
You must set clear and measurable targets (the desired level of performance) and then track your movement toward that end goal. The purpose of KPIs is to improve leading indicators that will eventually stimulate lagging benefits.
What makes an actionable payroll KPI?
To measure progress, your end goals need to be SMART (specific, measurable, achievable, realistic and time-based). Additionally, good KPIs have the following characteristics:
- Offer objective proof of progress toward the end goal
- Measure what needs to be measured
- Make it possible to compare the changing degree of performance over time
- Manage a balance between leading and lagging indicators
- Can track various factors, like:
- Personnel performance
- Resource utilization
Top Payroll KPIs
There are many different performance indicators you can focus on to measure payroll performance on an international scale. But to position your company for success, you should narrow the field and focus on the most critical payroll KPIs. These include:
#1: Payroll cost
What is the total cost of your payroll process?
Payroll costs aren’t simply accounted for by salaries. You must also factor in expenditures beyond compensation, like benefits and tax withholding. Additionally, there are costs involved with the payroll process itself, like:
- Payroll employee bandwidth required to perform payroll processing in-house
- Software system fees
- Time and money spent on IT support and systems
- Outsourcing fees (if you outsource payroll processing)
- Payroll errors that occur
When payroll costs are too high, it can inversely impact your profitability. Tracking these costs empowers you to hold a tighter rein over your expenses.
So, for instance, you may set a goal to reduce your payroll expense by 10% over the next year. After the goal is set, you must come up with a strategy to achieve it. Once implemented, you can then leverage various KPIs related to payroll costs to monitor your effectiveness, adjusting strategies as needed.
#2: Payroll processing time
How many people are involved with the payroll process? How long does it take them to complete the payroll processing cycle? How much time does it take to collect and process payroll data?
You can look at this KPI from both a granular perspective—time required to complete a specific task or series of tasks—as well as a macro perspective—the total time involved with the entire process.
Naturally, the longer the process goes, the more it will gnaw away at a company’s limited budget and resources. Accordingly, your end goal should be to accelerate the speed at which these processes occur but not at the expense of accuracy, seeing as errors only serve to hamper the entire process.
Ideally, adopting a payroll processing system can help automate the tedious, error-prone, manually-based processes. With the right system, you could streamline the entire process and free up your payroll team for tasks that actually require their expertise.
#3: Payroll errors
What is the accuracy rate of your automated payroll system and process? How many payments are processed in a set time period? What percentage of those payments include errors?
The presence of errors will only serve to reduce the efficiency of your payroll. Each one carries the potential to inhibit your business from both a financial and an opportunity cost perspective. Common errors include:
- Misclassified employees
- Incorrect tax forms
- Missed deadlines
- Pay miscalculations
And then there are much larger areas of concern related to international rules and regulations. Failure to comply with country-specific employment laws may not only result in fines and fees but could also impact your company’s ability to legally operate in the region.
#4: Error resolution cycle time
How productive and effective is your payroll service department?
Errors are often a major KPI that auger internal inefficiencies. And these don’t just cost a company in terms of resources—they can also impact employee performance and satisfaction depending on the resolution timeline. However, as the GPM Institute notes, a lengthy cycle is bad for business:
“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 revealed a 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.”
If an employee is waiting on their paycheck to clear in order to pay their bills, they’ll be unhappy with an extended error resolution cycle, especially if this is an issue they must regularly deal with. When that occurs, additional stress is put on the impacted employee, as well as on everyone else involved in the process.
What factors impact time to resolve?
Often, a slow process is demonstrative of the fact that there are inherent problems with your system, such as staff shortage, insufficient training or poor processes. Fortunately, there are payroll automation and integrations that not only speed up the resolution process but also identify common areas of weakness and help reduce the number of errors that occur within the master data log.
Do your employees go above and beyond the call of duty?
If members of your team are working past the 40-hour work week, they should be compensated for the fact. In many places, a company is legally required to do so.
Accurately tracking overtime ensures that employees are paid what they’re due. Not to mention, tracking the amount of overtime compared to expectations allows you to measure the health of a department. If employees are consistently working more hours than budgeted for, it could signal that there are too many responsibilities and not enough team members to support the workload.
By taking proactive measures to reduce the amount of overtime needed, you could fix the internal problem before employee burnout sets in and reduce your overtime expenses.
#6: Turnover costs
What percentage of employees leave your company? What is the average employee lifecycle? What is the average cost of turnover? Per-position cost of turnover? How long does it take to replace them, and at what cost?
For a growing business, there are associated expenses practically every time an employee leaves the company, including:
- Costs of separation and vacancy
- Time and resources involved with recruitment
- Onboarding costs necessary to get the new employee up to speed
Not to mention, the tangential impacts on teams who must bear extra responsibilities in the meantime.
Put simply, turnover impacts company morale and your bottom line, so the less turnover you have, the better. By breaking down the various factors associated with turnover, your company can plan for the unexpected and take actions to streamline the hiring process.
Are you a multinational company?
If so, the rules and regulations regarding payroll in one country may be wildly different in another. But to successfully implement a global payroll system, you must comply with the payroll laws in each country of operation.
Ensuring compliance isn’t easy. It’s time and labor intensive. In fact, according to surveys from the Workforce Institute, global HR and payroll departments spend an average of 36 hours each week on compliance-related activities for companies with more than 500 employees and 23 hours each week for companies with less than 500.
Logically, the more employees you have and the more locations the business operates from, the harder it becomes to maintain payroll compliance. Along those lines, per the survey, each new major regulatory change costs a business between $40,000 to $100,000 to comply.
This makes tracking your company’s compliance crucial to your overall financial health. To get the tax and compliance right, it helps to take advantage of employer of record services.
Playroll—International Payroll Experts
Managing payroll solutions and compliance is a difficult undertaking for any business. But for international companies, the inherent complexity is compounded by languages, borders, currencies and local practices.
Setting goals, identifying relevant KPIs and then continuously monitoring them is one of the best ways global companies can improve payroll performance no matter where they do business.
Not sure where to begin with your company?
Playroll is an automated global payroll management system that facilitates multinational payroll management at the click of a button. With cost calculators, country insights and easy reporting, our solution was built to help you succeed wherever your company goes.
How does the system work? Contact us today for your free Playroll demo.