February 03, 2022
What are payroll KPIs?
Why is it important to have payroll KPIs?
The 5 payroll KPIs to keep an eye on
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KPIs are not only important for marketing campaigns, product launches, and employee performance. They are also a great way to improve and optimise your payroll process. With the right KPIs, you can measure your overall payroll productivity while also saving money at the same time.
Here are some of the most valuable payroll KPIs you should keep an eye on.
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:
KPIs can be used for all kinds of different business operations, including payroll. Keeping an eye on your payment processes can help you 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 implications for your businesses success as well as your 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 is 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 regards 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 stirs you towards a more time-efficient way of processing your employee’s payments.
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There are many different performance indicators that can help you keep track of your payroll process. But while it is easy to get lost in the different numbers and data from your system, you might want to optimise your analysis by focusing on the most insightful KPIs for your payroll.
There are different ways to measure the cost of your payroll. Many companies solely focus on how much they spend on labor expenses, but we recommend taking a more detailed approach and especially checking how much you pay for operating your payroll system.
This includes spendings for the software itself, as well as wages for the team responsible for payroll.
Another important factor to keep an eye on 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 want to see an increase in productivity and less time spent working on manual tasks.
It is crucial to keep an eye on your employee data, especially when it comes to lodging overtime and handing in leave. Tracking the hours of your team allows you to more accurately allocate funds for overtime payouts, or identify projects and areas that might need your attention as they are more time consuming than initially planned.
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.
One of the biggest advantages of an automated payroll system is the elimination of errors, or a higher accuracy rate. However, that does not mean that you are freed from making mistakes.
Something to keep track of therefore is how many errors are made, and how long it takes to fix them. 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.
Finally, the overall effectiveness and efficiency of a payroll setup helps you take a holistic look at your payroll and decide whether or not you need to adapt the process.
Overall effectiveness takes the number of errors into account, but also investigates how much time it takes for any tasks that are deemed “outside the norm”, and therefore affect the efficiency of the software. Each deviation from the norm costs time and money, so you want to make sure to keep those outliers to an absolute minimum.
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