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Richard Butterworth | Senior Business Development Manager, CloudPay
Look beyond standard payroll KPIs, such as accuracy and timeliness, and you’ll be able to learn much more about how successful your payroll really is. Given how central payroll is to business success, the importance of these insights really can’t be overstated.
One of the key variables to take into account is supplemental impact, and in this blog, we’ll explain how it works, what it means for you, and how well payroll practitioners around the world are performing with it.
What is a supplemental impact?
Supplemental impact is the percentage of total payroll runs that are conducted as an addition to the normal payroll cycle. It’s simply calculated by dividing the number of supplementary runs processed through the payroll system by the total runs processed. The key performance indicator is therefore normally expressed as a percentage.
Why is it important to monitor supplemental impact?
Supplemental impact is an important KPI to measure because of the substantial cost and operational implications of doing too many supplemental runs. When payroll is inefficient, and lots of supplemental runs are needed to correct errors, the valuable time of payroll teams is wasted and the payroll process becomes more laborious and expensive. This can then have a knock-on effect of putting further time pressure on the following month’s payroll, which can then increase the risk of more errors being made.
There are lots of reasons why a supplemental impact rate can become excessive. They include (but are not limited to) an increase in lay-offs that generates the need for severance payments, urgent expense reimbursements, simple human error, or inconsistencies in data. That’s why a poor supplemental impact on its own cannot identify exactly what the problem is within a payroll process. But it can identify that there is a problem, which payroll practitioners can then diagnose through further investigation, and analysis of other detailed KPIs.
What does success in supplemental impact look like?
The current state of play in supplemental impact globally has been highlighted by our recent Payroll Efficiency Index report, which highlights the most recent figures available, from 2020. The report highlighted that supplemental impact increased by 4.2% between 2018 and 2020, and by 4.6% in the EMEA region, although these overall figures should be viewed in the context of a steep rise in lay-offs caused by the COVID-19 pandemic.
However, a closer look at the regional data identified some interesting points around the difference that supplemental impact can make. In particular, countries in South America tend to have the highest supplemental impact rates of anywhere in the world: Brazil, Argentina and Colombia all ranked in the global top five in the report, while Bolivia and Chile also featured in the top five in the previous report in 2018. These countries also have some of the shortest calendar lengths globally, suggesting that their payroll may be rushed, adequate checks aren’t being made, too many errors are occurring, and too many supplemental runs are having to be made to correct those errors.
At the other end of the scale, Taiwan has one of the lowest supplemental impact rates in the world, and the explanation for this is simple: employers are allowed to pay new employees and leavers within their normal monthly payroll runs, so no supplemental runs are ever required in this area.
In summary
Supplemental impact is an interesting metric in its own right, but as this report demonstrates, it shouldn’t be considered in isolation. Instead, it forms part of a group of different metrics or key performance indicators including calendar length and issues per 1000 payslips, which can collectively highlight areas for improvement within payroll processes. Given that payroll can often account for more than 50% of total business costs, using these KPIs to find issues and resolve them can make a major difference to overall business success.
Get a global and regional view of payroll performance, and put your own results into context, with the new edition of the CloudPay Global Payroll Efficiency Index. Download your copy of the report today.
