As a payroll professional, key performance indicators (KPIs) may not be your highest priority. In fact, only 44% of small businesses and 49% of mid-sized organizations track KPIs. Whereas, in large organizations where payroll typically plays a more strategic role, 64% of organizations track KPIs.
It’s time to change that. Creating and tracking key payroll KPIs demonstrates your value and impact on organizational efficiency. They help you show your objectives are being met (or exceeded) and that you’re finding new ways to decrease inefficiencies and increase cost savings.
Payroll KPIs and why they matter
KPIs are performance measurements used to track organization processes and analyze costs. Payroll KPIs help measure and evaluate the accuracy and effectiveness of your payroll processes, providing insights into how well your payroll performance align with your organizational goals and identifying opportunities for improvement.
Payroll KPIs can help you avoid payroll inaccuracies that could impact company resources, affect employee satisfaction, or even lead to fines.
Accurate payroll processes not only serve as indicators of your payroll performance but also act as a cost-benefit analysis for compensation-related expenses — allowing organizations to identify areas to optimize spending and make more informed decisions to improve overall effectiveness.
How to determine the true cost of your payroll
To get a clearer picture of what payroll performance KPIs to measure, start with what it costs to run payroll for your company. Factor in the salaries of everyone involved in your payroll process, including staff who complete timesheets, payroll accountants, IT support, HCM software support, payroll admins, managers, etc.
To determine your payroll costs as a percentage of revenue, divide your total payroll expenses by your company's total revenue.
For payroll costs per employee, simply divide your total payroll expenses by the number of employees you process payroll for.
Errors & Accuracy
In payroll, errors can lead to serious consequences, making it crucial for payroll professionals to identify and correct every mistake as quickly as possible. Payroll performance KPIs heavily rely on the accuracy of your payroll data. Before using payroll KPIs to evaluate the effectiveness of your payroll performance, you need to ensure that your payroll process is both accurate and reliable.
To maintain accurate payroll data, payroll administrators should account for the following variables:
- Salary types (e.g., salary, hourly, commission, contractor)
- Precise time tracking for hourly compensation
- Leave categories (e.g., paid time off, maternity leave, sick leave, bereavement)
Ensure you keep track of payroll errors for each pay period. To calculate your payroll accuracy percentage, divide the number of payroll runs with errors by the total number of payroll runs.
Measuring productivity
Productivity metrics help your entire payroll department by identifying areas for improvement in efficiency, output, and individual performance. The best way to measure productivity is to compare the ratio of payroll employees to the total number of employees.
Metrics to identify issues affecting productivity:
- Amount of payments processed per payroll processor
- Number of payments processed outside of the normal payroll processing cycle
- Total retrospective payments
- How much time it takes to resolve input issues
Measuring efficiency
If you’re measuring productivity, it only makes sense to measure your efficiency too.
These metrics can tell you if your payroll department is meeting its goals on time and help identify any factors that may be impacting performance such as:
- Payroll errors (including overpayments)
- Payroll questions and response times
- Time spent on integration and maintaining your HCM solution
- Automation and time spent on forms, workflows, employee self-service, reporting, payslips etc.
Measuring the time to run payroll
Measuring the time it takes to process payroll helps you understand the associated costs and identify opportunities for improving efficiency. Without a doubt, working with modern payroll software will speed up your payroll processing. On average, Avanti clients report that Avanti's payroll tools save them anywhere from 25-50% of their time running payroll. That’s significant when you think about how that reduction in time saves organizations thousands per year.
Overtime
To determine the time spent on overtime, add the total overtime costs paid out, then analyze payroll costs by individual departments and teams. Be sure to measure how much time your team spends calculating overtime wages. This amount will help you make informed decisions about staffing, employee workload, overtime schedules, and hiring needs.
Training costs
Onboarding and training new employees is an expensive but essential investment for any organization.
To calculate this payroll metric, divide the total training costs by the number of trainees involved in the process. Be sure to include all expenses, such as senior staff time (the trainers), facilities, equipment, and any associated travel or meal costs.
By breaking down each cost, you can identify areas to save or look for new processes (or software) to reduce the overall cost.
Get measuring
KPIs are most effective when they align with your specific processes, goals, and challenges. Whether you're a small business striving to improve or a larger organization seeking growth opportunities, these key payroll KPIs will help ensure that your payroll process allocates resources effectively while fully supporting your employees. By leveraging these insights, you can drive continuous improvement and boost both productivity and employee satisfaction.
So, what are you waiting for? Start measuring today and harness the power of payroll to pave your organization's way toward greater efficiency and long-term success.
Additional Resources
- How to avoid errors when running payroll
- Tell Better Data Stories with Avanti Report Designer
- Everything you need to know about HCM
Ready to transform your payroll operations and start saving big?
Avanti's flexible in-house payroll solution gives you more control, reduces costs, and frees up time—so your team can focus on what matters most. Talk to an Avanti expert today to learn more about how we can transform the way you work!
