Making friends with payroll metrics Making friends with payroll metrics

Making friends with payroll metrics
02 Oct 2018

Management consultant Peter Drucker is often quoted as saying: “You can't manage what you can't measure.” The implication is that it is impossible to know whether or not you have been successful unless this success has been defined and tracked.

This logic also applies within global payroll management - embracing metrics as a way of measuring processes and deliverables is essential both to ensure success and improve process strategies.

But in order to report on the complexities of global payroll delivery and enhance existing approaches, it is also important to measure payroll deliverables and processes. Accurate data is a must for any decision-making here.

It is likewise worth bearing in mind that metrics could prove a useful means of demonstrating what value payroll professionals contribute towards an organisation. While this value has been overlooked for years, one of the reasons for this is that it has rarely been measured.

Using metrics to demonstrate the value of global payroll service delivery

To be in a position to report on the value that payroll offers with an organisation, certain metrics must be tracked. Some possible measurement points here include:

Accurate and timely service delivery

Payroll is by nature very deadline-driven. ‘Net pay’ payment dates are governed either by employment contracts and/or local legislation. Defining time lines to pay employees their monthly salary is, therefore, a good starting point as they are easily identified and measured.

Meeting target deadlines is one possible measurement, but another is ensuring that the actual amount paid is accurate. Examples of metrics that would fall into this category are:

  • Number of payslip errors found after payslips have been issued;
  • Number of payslips not issued on or before the country’s official pay day;
  • Number of payments not made on pay day.

Compliance

While ensuring timely service delivery and accurate ‘net pay’ are important, unless the entire payroll process is compliant with local legislation – both labour and statutory - the benefits of being on time and accurate are eroded.

Moreover, compliance failure can have financial consequences for the organisation. Many countries impose financial fines for non-compliance. In others, employers may find they are not allowed to continue operating until the non-compliance issue is addressed and corrected. Compliance can be measured by looking at the percentage of:

  • Statutory returns submitted to the statutory authorities by the due date;
  • Payments made to the statutory authorities for taxes and statutory benefits by the due date;
  • Payments made to benefit providers, for example pension suppliers, by the due date;
  • Payroll errors due to an incorrect interpretation of legislation.

Effectiveness and efficiency

Effectiveness and efficiency are another significant aspect of global payroll service delivery. Most organisations strive to provide services that are efficient as it leads to reduced costs. The following metrics are useful in this context:

  • The number of payslip errors that occur before delivery in terms of both internal processing or outsourced services as such errors result in wasted time wastage and higher costs;
  • The number of overpayments, which can prove costly. Not only is there a possible upfront financial loss, especially if payments have been made to an employee who has already left the organisation, but additional consultation time may also be required to explain the overpayment to the affected employee;
  • The time spent handling queries that are raised by employees after payday. These should be monitored and can be measured based on either the time spent resolving the query or the number of after-payday queries received.

Safety and security

By its very nature, payroll delivery involves vast quantities of personal data, so controlling that data must be done is a safe and secure manner. Besides managing employees’ payroll data, it is also necessary to ensure that payments are made to the correct recipient. Therefore, measurements here should cover:

  • Number of payments made to an incorrect bank account. Any payment made to an incorrect account will result in additional time being spent in retrieving the funds and reprocessing the correct payment. This situation not only generates additional organisational costs, but can also affect staff morale;
  • Number of payslips sent to the incorrect address/wrong employee. On top of the data breach issue, which may require you to conform with the reporting requirements of local data privacy legislation, this situation also results in a time penalty as it is necessary to consult with the employees concerned;
  • Number of data protection breaches, which may require management time to tackle. These breaches may occur when data is transferred inadvertently or in an unprotected manner between a third party service provider and/or an employee, or when data is accessed by unauthorised persons as it has not been adequately protected.

Cost-effectiveness

As we know, employers are seeking to run payroll departments in an effective and efficient manner in order to keep costs as low as possible. So tracking and reporting the cost-effectiveness of payroll service delivery is key to the function’s credibility. Possible metrics here include:

  • Cost per Full Time Equivalent (FTE) of providing the payroll service, and/or the annual service cost per employee;
  • Cost per payslip;
  • Cost of producing a payment.

Conversely poor service delivery could be measured by taking into account the total cost of fines and penalties incurred during the reporting period, additional resourcing costs to reprocess errors, the financial cost of money paid out that cannot be recovered and technology that does not work.

Using metrics effectively

When metrics are measured, recorded and reported, the resultant data can be used to uncover and identify trends, which can in turn support decision-making at all levels of the organisation. Metrics serve to provide a baseline for future measurements and benchmarking, and for assisting in developing the organisation’s business scorecard.

Metrics are also an excellent means of driving process improvement, understanding weaknesses in the overall payroll cycle and identifying areas that could be improved upon. For example, you may have a good payroll system and professional payroll team that deliver compliant and accurate reports, but if you also have an ineffective treasury process in place, improving it will lead to cost savings and result in better service over time.

Conclusion

Global payroll professionals should ideally see metrics as a necessary feature of service delivery and use them not only to demonstrate their value to an organisation but as a means of ensuring continuous process improvement.

 Sharon Tayfield 

Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.

 OTHER ARTICLES THAT MAY INTEREST YOU

Payroll metrics: Uncovering the data that leads to continuous improvement

Payroll scorecards: Beyond gross to net

The three sub-processes making up 70% of payroll labour costs

 

 

 

Management consultant Peter Drucker is often quoted as saying: “You can't manage what you can't measure.” The implication is that it is impossible to know whether or not you have been successful unless this success has been defined and tracked.

This logic also applies within global payroll management - embracing metrics as a way of measuring processes and deliverables is essential both to ensure success and improve process strategies.

But in order to report on the complexities of global payroll delivery and enhance existing approaches, it is also important to measure payroll deliverables and processes. Accurate data is a must for any decision-making here.

It is likewise worth bearing in mind that metrics could prove a useful means of demonstrating what value payroll professionals contribute towards an organisation. While this value has been overlooked for years, one of the reasons for this is that it has rarely been measured.

Using metrics to demonstrate the value of global payroll service delivery

To be in a position to report on the value that payroll offers with an organisation, certain metrics must be tracked. Some possible measurement points here include:

Accurate and timely service delivery

Payroll is by nature very deadline-driven. ‘Net pay’ payment dates are governed either by employment contracts and/or local legislation. Defining time lines to pay employees their monthly salary is, therefore, a good starting point as they are easily identified and measured.

Meeting target deadlines is one possible measurement, but another is ensuring that the actual amount paid is accurate. Examples of metrics that would fall into this category are:

  • Number of payslip errors found after payslips have been issued;
  • Number of payslips not issued on or before the country’s official pay day;
  • Number of payments not made on pay day.

Compliance

While ensuring timely service delivery and accurate ‘net pay’ are important, unless the entire payroll process is compliant with local legislation – both labour and statutory - the benefits of being on time and accurate are eroded.

Moreover, compliance failure can have financial consequences for the organisation. Many countries impose financial fines for non-compliance. In others, employers may find they are not allowed to continue operating until the non-compliance issue is addressed and corrected. Compliance can be measured by looking at the percentage of:

  • Statutory returns submitted to the statutory authorities by the due date;
  • Payments made to the statutory authorities for taxes and statutory benefits by the due date;
  • Payments made to benefit providers, for example pension suppliers, by the due date;
  • Payroll errors due to an incorrect interpretation of legislation.

Effectiveness and efficiency

Effectiveness and efficiency are another significant aspect of global payroll service delivery. Most organisations strive to provide services that are efficient as it leads to reduced costs. The following metrics are useful in this context:

  • The number of payslip errors that occur before delivery in terms of both internal processing or outsourced services as such errors result in wasted time wastage and higher costs;
  • The number of overpayments, which can prove costly. Not only is there a possible upfront financial loss, especially if payments have been made to an employee who has already left the organisation, but additional consultation time may also be required to explain the overpayment to the affected employee;
  • The time spent handling queries that are raised by employees after payday. These should be monitored and can be measured based on either the time spent resolving the query or the number of after-payday queries received.

Safety and security

By its very nature, payroll delivery involves vast quantities of personal data, so controlling that data must be done is a safe and secure manner. Besides managing employees’ payroll data, it is also necessary to ensure that payments are made to the correct recipient. Therefore, measurements here should cover:

  • Number of payments made to an incorrect bank account. Any payment made to an incorrect account will result in additional time being spent in retrieving the funds and reprocessing the correct payment. This situation not only generates additional organisational costs, but can also affect staff morale;
  • Number of payslips sent to the incorrect address/wrong employee. On top of the data breach issue, which may require you to conform with the reporting requirements of local data privacy legislation, this situation also results in a time penalty as it is necessary to consult with the employees concerned;
  • Number of data protection breaches, which may require management time to tackle. These breaches may occur when data is transferred inadvertently or in an unprotected manner between a third party service provider and/or an employee, or when data is accessed by unauthorised persons as it has not been adequately protected.

Cost-effectiveness

As we know, employers are seeking to run payroll departments in an effective and efficient manner in order to keep costs as low as possible. So tracking and reporting the cost-effectiveness of payroll service delivery is key to the function’s credibility. Possible metrics here include:

  • Cost per Full Time Equivalent (FTE) of providing the payroll service, and/or the annual service cost per employee;
  • Cost per payslip;
  • Cost of producing a payment.

Conversely poor service delivery could be measured by taking into account the total cost of fines and penalties incurred during the reporting period, additional resourcing costs to reprocess errors, the financial cost of money paid out that cannot be recovered and technology that does not work.

Using metrics effectively

When metrics are measured, recorded and reported, the resultant data can be used to uncover and identify trends, which can in turn support decision-making at all levels of the organisation. Metrics serve to provide a baseline for future measurements and benchmarking, and for assisting in developing the organisation’s business scorecard.

Metrics are also an excellent means of driving process improvement, understanding weaknesses in the overall payroll cycle and identifying areas that could be improved upon. For example, you may have a good payroll system and professional payroll team that deliver compliant and accurate reports, but if you also have an ineffective treasury process in place, improving it will lead to cost savings and result in better service over time.

Conclusion

Global payroll professionals should ideally see metrics as a necessary feature of service delivery and use them not only to demonstrate their value to an organisation but as a means of ensuring continuous process improvement.

 Sharon Tayfield 

Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.

 OTHER ARTICLES THAT MAY INTEREST YOU

Payroll metrics: Uncovering the data that leads to continuous improvement

Payroll scorecards: Beyond gross to net

The three sub-processes making up 70% of payroll labour costs