Calculating your actual payroll costs is a time consuming and complex process, which most small businesses don’t have the resources or expertise to do correctly.
Payroll metrics measure your payroll process; they’re the numeric indicators of how well your payroll process is doing, so understanding the key data is very important for business owners.
If you don’t have a good handle on what’s going on with your company’s finances and cash flow, it can be challenging to make intelligent decisions about where to focus your efforts.
In the world of business, many different KPIs can be used to measure success and growth. However, when it comes to payroll management, only a few key metrics should be focused on. This guide will show you how to use these metrics to improve your company’s performance and overall productivity.
Knowing how much your payroll is costing your business
The payroll cost is an essential metric for any business owner or manager who wants to reduce their company’s total spending on labour and ensure they are getting the most value from each employee.
Payroll tax alone adds almost seven per cent loading to the cost of each employee in your organisation, and that is before you factor in other payroll expenses.
With this information on expenses, you can take actionable steps towards reducing your overall costs while maintaining high levels of productivity and service quality. This can be achieved through a simple calculation.
An employee’s labour cost per hour is calculated by adding their gross wages to the total cost of related payroll expenses (including annual payroll taxes and annual overheads like accounting expenses like payroll software, timesheet costs and all other company expenses), then dividing by the number of hours that they work each year. Doing this will help determine how much an employee costs employers per hour.
The time it takes to process payroll
If you have many employees, this is an important number because every minute counts when running payroll. The more accurate your data, the better decisions you can make about improving efficiency and reducing costs associated with running payroll. This will help ensure that all employees are paid accurately and on time while also saving money for your business.
You can find ways to reduce the time it takes you to run payroll when analysing this payroll KPI by tracking which steps take longer and making adjustments where needed. You may also want to track specific groups of tasks or individual ones to ensure nothing is taking too much time.
Accuracy means everything in payroll
Mistakes in their payroll solutions can catch even the most experienced managers off guard. If you’re not careful, those errors could cost your company thousands of dollars and cause serious problems for employees.
You need to ensure that your current payroll process is reliable before you can use other KPIs to analyse the full effects of your payroll performance. Every other KPI depends on the accuracy of your data, so it’s crucial not only for analysis but also for potential future decisions about how best to run and improve your payroll systems.
Payroll productivity and effectiveness metrics
Most companies struggle with measuring the effectiveness of their payroll systems. Without proper measurements, it becomes hard to tell if your company needs more features or just better processes using what they already have.
Payroll processors can monitor their productivity and effectiveness using four metrics. They are the number of payments processed per payroll processor, the number of payments received outside normal cycle time (not including unclean input), retrospective payment counts, and resolution times for unclean data inputs.
Tracking overtime and ensuring employees take TOIL
Research has shown that the average employee will work almost 5.3 hours overtime every week. The larger your company is, the more overtime you pay and the higher your payroll expenses are. This metric can help determine if overtime is necessary and whether new employees should be hired to ease the burden (which can be cost-effective).
For companies that operate on TOIL or time in lieu, it is vital to stay on top of how much leave each employee accrues as this can cause tax issues if it snowballs over time.
Interested in more essential payroll advice? Check out our master guide here!