Traditionally, payroll was perceived as a back-office function which was separated from the other departments and whose sole purpose was to make sure employees get paid. Recently, however, the perception of the payroll function has drastically changed. More and more businesses are realizing that the data generated with each payroll run holds a lot of value for the business.
Payroll data is a valuable source of information for businesses if collected and analyzed properly. But what insights can businesses gain from their payroll data and how can it be used to inform business decisions and strategy?
When people talk about payroll data, they can refer to two different sets of data, one being the data input needed for payroll, and the other one being the data output of the payroll process. For our purposes, we’ll define payroll data as the set of data that is the outcome of a business’s payroll process.
Payroll data comprises a lot of different information regarding the employees as well as the business’s workforce costs, tax liabilities, and more—basically, it’s any kind of information you can extract from your payroll process. If analyzed correctly, the data resulting from the payroll calculations can be used to guide strategic decision-making.
There are different metrics that need to be taken into account when analyzing payroll data. The main metric that is collected during the payroll process is, of course, base wages and salaries. But there are other types of payroll data as well. Here are some examples of the data sets businesses should look out for:
Sick leave and other PTO
Information on starters and leavers
Contingent workforce costs
Payroll data is more than just some numbers noted somewhere on a spreadsheet. If used in the correct way, it can enhance the overall performance of your business. But in order to get there, you must make sure that the data is available to the right people.
HR, talent management and payroll departments all benefit from having access to reliable and detailed payroll data reports. Not to forget the upper management who is in charge of making the right decisions to bring the business forward.
There are many ways of collecting payroll data, but some are definitely more efficient than others. Especially when collecting data for a large workforce, it’s important for the process to be as efficient as possible. Also, the risk of errors should be minimal. That’s why it’s recommended to use payroll software—and not rely on spreadsheets.
When gathering payroll data for different branches, offices, or even foreign subsidiaries, it’s vital to collect the same information for each of them and put the data into a standardized format. Since accomplishing this task manually is a challenge, businesses should consider using payroll automation. Another aspect to keep in mind when collecting payroll data for analysis purposes is to ensure the data is kept in a central storage facility that provides easy access.
Payroll data can be analyzed under many different aspects, depending on what exactly you want to use it for. Here are a few example questions you could ask when going over last month’s payroll output:
Which employees or departments constantly put in overtime hours?
Is there an especially high sick leave rate?
What is the current employee turnover rate? And which departments have the highest turnover?
How much do you spend on employee benefits?
Is the basic salary you offer your employee in line with market standards?
How many errors occur in each payroll run, and what are the additional costs that result from this?
How do your workforce and payroll costs compare across geographies?
What is the average pay rate for a particular role in the organization?
What is the cost of processing payroll?
Of course, the first step towards using payroll data to create value for the business is to develop a proper data collection and consolidation process. Only if the large sets of data generated in payroll are easily accessible and transparent, businesses can analyze them and draw the necessary conclusions for their business strategy and decisions.
Analyzing your payroll data following the different questions we’ve outlined above will show trends and patterns in your organization regarding various aspects of your workforce as well as your business’s economic and financial situation. Here is how you can use these data insights to enhance your business operations.
Workforce-related costs represent the biggest share in a business’s overhead costs. In some industries, payroll-related costs may even represent between 50% and 70% of a company's overheads.
Processing errors in payroll can therefore quickly become very expensive, no matter how small they are. Having knowledge about your payroll data enables you to track any possible changes and quickly spot and correct errors, which will ultimately allow you to avoid financial losses.
Keeping a close eye on your payroll data can help maximize your payroll compliance in several different ways.
Gender pay gaps: Payroll data analytics can uncover hidden gender pay gaps in your organization and help you take appropriate action against them. Having the necessary data at hand can further help fulfill existing requirements with regard to gender pay gap reporting.
Payroll reports: Having access to reliable payroll data makes payroll reporting a lot easier and minimizes the risk for errors which could put your business at risk of being noncompliant.
Employment laws: Payroll data can be used to verify compliance with key employment regulations. For instance, a quick glance at overtime metrics will tell you immediately if the amount of overtime worked is in line with legal limits.
Payroll records: Well-structured payroll data makes it a lot easier to keep payroll records. Record keeping is a legal requirement in payroll, which means that simplifying this task enhances the business’s overall compliance.
With access to complete and transparent payroll data, HR teams can run different analyses to gather valuable information on salary competitiveness which they can then use to rework the company’s compensation strategy to win new talent as well as to retain top performers.
Monitoring and benchmarking compensation, performance and business results also shows if the three metrics are in sync with each other or if any adjustments are needed. In addition, analyzing existing pay structures can lead to a better understanding of employee turnover.
Having a clear view of total workforce costs enables leaders to make more accurate forecasts and plan and budget accordingly. Once the findings of the payroll data analytics are on the table, this information can be used to make well-informed business decisions regarding:
Compensation strategy and payment methods, e.g. by adding more flexible payment options to give employees access to their earnings when they need it so that they don’t have to ask for payroll advances on a regular basis
Hiring strategy, e.g. by focusing your hiring efforts on departments that often have to put in extra hours
Expansion strategy, e.g. by closing down subsidiaries and offices in countries where payroll costs and expenses are too hig
The Lano Academy is for informational purposes only and should not be construed as legal advice. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this article.
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