Payroll KPIs and metrics

KPIs are not only important for marketing campaigns, product launches, and employee performance. They are also a great way to improve and optimize payroll processes. With the right KPIs, businesses can measure their overall payroll productivity while also saving money at the same time. But which payroll KPIs should businesses monitor to make their payroll operations more efficient?

Key performance indicators, or KPIs, are used to measure the performance of a person, a team, or a project. It involves setting a goal beforehand, and then tracking the progress made towards that goal at different stages.

In order to properly measure the progress, goals should generally be SMART:

• Specific

• Measurable

• Achievable

• Realistic

• Time-based

KPIs can be used for all kinds of different business operations, including payroll. Keeping an eye on their payment processes can help businesses identify weak spots that may cause a drop in productivity (and cost you a lot of money).

Just like with any other aspect of your business, you want to make sure you have efficient and productive processes in place. Streamlining your payroll is especially important as shortcomings in your setup might have severe repercussions on business success as well as on employee satisfaction.

If your payments are repeatedly delayed, your employees might get frustrated and start looking for a more reliable place of work. Additionally, it’s hard to expect your team to perform to deadlines and stress the importance of punctuality when you can’t pay them in time.

Another thing to consider is how your payroll performance might influence your business goals. This is mainly in regard to potential fees and time spent on managing the payroll process. When monitoring your performance, you can identify areas to improve, which not only saves money, but also leads you towards a more time-efficient way of processing your payments.

There are many different performance indicators that can help you keep track of your payroll process. Since it’s easy to get lost in the different numbers and data from your system, you might want to optimize your analysis by focusing on the most insightful KPIs for your payroll.

Payroll cost

There are different ways to measure the cost of your payroll. Many companies solely focus on how much they spend on labor expenses, but it’s generally recommended to take a more detailed approach and also check how much is spent on operating the payroll system. 

This includes spendings for the payroll software itself as well as the wages of the payroll team.

Time spent

Another important payroll KPI is how much time each step in the payroll process takes to complete. This is best done by tracking the hours spent working in the software. The ideal payroll process includes as much automation as possible, in order to free up capacities for your payroll team to focus on other tasks. 

Naturally, introducing a new system takes some time, and your employees will probably spend quite a bit more time initially when working in the new software. However, over time, you’ll see an increase in productivity and less time spent on manual tasks.

Overtime and leave

Monitoring your employee data closely is crucial, especially when it comes to lodging overtime and handing in leave. Tracking the hours of your team allows you to allocate funds for overtime payouts more accurately, or identify projects and areas that might need your attention as they are more time-consuming than initially expected.

Additionally, getting some insight and data on when your employees take leave allows you to identify the most popular periods within a year for leave. Oftentimes this will directly correlate with school holidays for those employees with kids at home, but it might be more complex to identify these periods when you work with distributed teams and employees working in different time and climate zones.

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Accuracy rate

One of the biggest advantages of an automated payroll system is the elimination of errors, which goes hand in hand with improved accuracy. However, that doesn’t mean that the risk of making mistakes is completely eliminated, which is why keeping track of errors and the time needed to correct them is another important payroll KPI.

If a simple mistake takes a lot of time to correct in your current payroll process, it might have serious implications on your overall productivity and cashflow. You want to find a system that not only helps eliminate mistakes as much as possible, but also allows for a fast and easy fix whenever needed.

Overall effectiveness

Finally, measuring the overall effectiveness and efficiency of your payroll setup helps you take a holistic look at your payroll and decide whether or not you need to adapt the process. In order to determine how efficient your payroll processes are, you need to take into account how many errors happen in each payroll run as well as how much time it takes is spent on any tasks that are deemed “outside the norm”, since the latter affect the efficiency of your payroll system. Each deviation from the norm costs time and money, so you want to make sure to keep those outliers to an absolute minimum.