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Payroll Performance Metrics to Track (that the C-Suite Cares About)

iconPayroll Metrics icon5 min read
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Ever since there’s been data, there have been those obsessed with tracking and measuring it. And when it comes to payroll data metrics, there are sets of numbers you should be tracking to help ensure your business’s payroll processes are being performed correctly while supporting your employees. 

First, what are the most important payroll metrics?

Payroll metrics, or to use another often-toted industry term, KPIs, are indicators that analyze the cost of your payroll process while considering if that process is accurate. Inaccuracies in payroll cost more than employee morale; they can lead to serious tax penalties. After your business is confident in its payroll process -- whether that’s in-house or with a payroll provider -- analyzing payroll metrics help in the cost-benefit analysis of your company’s compensation-related expenses. 

If that last sentence seems like a mouthful, don’t worry, we’re going to break it down!

But in short, the most important payroll metrics are:

  • Number of errors/accuracy rate

  • Overtime calculations

  • The time it takes to run an accurate payroll

  • Cost of payroll/cost per payroll payment

  • Labor expense as a percentage of total revenue

Number of errors / accuracy rate

Payroll professionals have a lot to consider in order to run an accurate and timely payroll, including:

  • Ensuring hours worked are accurate for hourly compensation

  • Salary differences for salaried employees

  • Paid time off requests

  • Federal, state, and local taxes

This is by no means an all-inclusive list, but even these four components are enough to cause some inaccuracies if HR and payroll professionals aren't careful. Payroll accuracy is important not just for the reasons I mentioned above, but you can’t analyze other key performance indicators if your payroll data is inaccurate. 

How to Track Your Payroll Accuracy Rate

Keep a record of payroll errors per period, if you have any. To find a long-term payroll accuracy percentage, divide the number of payroll runs with errors by the total number of payrolls run.

Overtime calculations

If you are positive hours worked have been properly calculated, (hint: our Time & Attendance software can help with that!) it’s time to consider the next important payroll metric: overtime calculations. If part of your workforce is eligible for overtime pay, you need to make sure they’re compensated correctly. But it’s also important to track who is consistently hitting overtime and identify any inefficiencies within departments. If one department is constantly getting overtime pay, it may be time to hire an additional employee to help with the workload or to rearrange schedules. Dominion’s Time & Attendance software can easily pull an overtime report to see who is consistently hitting overtime. 

How to Track Overtime Calculations

Calculate the total overtime cost paid out, then analyze payroll costs by department and employees.

The Time it Takes to Run an Accurate Payroll

Running accurate payroll takes time. Supervisors need to ensure hours worked are accurate, expenses are in, and a myriad number of other tasks are completed. If you’re running payroll in-house, it likely takes you hours to run payroll. 

If you are running payroll in-house, you can greatly increase the efficiency of your payroll runs by implementing a single-source payroll and time and attendance system, like Dominion’s. 

How to Track the Time it Takes to Run an Accurate Payroll

Tracking this KPI will be different for everyone depending on your payroll process. But if you see variations in time based on seasons, holiday breaks, or time spent fixing mistakes, it may be time to outsource your payroll to an accurate and experienced provider

Cost of Running Payroll / Cost per Payroll Payment

This metric should tell you the cost of any software services you use, whether you calculate payroll yourself or outsource it to another company. Compared to the three metrics listed above, this calculation is a rather simple one.

How to Track the Cost of Running Payroll

Start by measuring how much per month you’re paying for any software you use in-house to calculate payroll or your expenses paid to a third party to do so for you. Then, measure over time how these expenses fluctuate with your company size, number of employees, pay frequency, and other employee and business-related decisions. 

Labor Expense as a Percentage of Total Revenue

For many companies, this is one of the most important metrics to measure, payroll-related or not. By adding your total payroll expenses to your total labor expenses, you get a holistic picture of your business’s people expenses. A lot of companies use labor expenses as their sole payroll metric and strive to keep them as low as possible. But as we’ve mentioned before, and it bears repeating, there is a balance between spending money on payroll improvements and the decrease in time and cost to run payroll. In other words, while it may seem more expensive to pay for a third party to handle payroll for your business, you’ll often see an ROI in both speed and accuracy once you do so. 

How to Measure the Labor Expense as a Percentage of Total Revenue

Take the total cost of your payroll process and add the cost of your full compensation package (salary, employer benefit contributions, and more). Then divide this figure by your total revenue to find this payroll metric percentage.

By keeping track of these payroll metrics, your business will be able to increase efficiencies across departments. Backed by solid data and an accurate payroll process, employees can continue to deliver results, and managers can focus on future company goals.

 
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