What Does Efficient Payroll Look Like?

Global payroll accuracy runs at 99.9%, which makes it sound like payroll worldwide is running extremely well. The reality is somewhat different.

Initial SLA figures like this make it seem like there’s nothing to worry about in the payroll world, but these metrics barely even scratch the surface of how payroll operates. For example, these SLAs don’t provide any insight for business owners or payroll teams into how results were achieved, how much time and resource was needed to get there, or where any improvements need to be made.

The only way to establish this level of insight is to use different, more granular KPIs that deliver a more accurate picture of payroll performance. At CloudPay, there are five KPIs in particular that we use to establish payroll efficiency benchmarks, and this blog will look at each of them in detail - as well as what efficiency looks like.

The five KPIs

It’s thanks to these KPIs that we’re able to highlight payroll issues that organizations can then go on to remediate, such as: compromised payroll data; inability to report at a global level; lack of global visibility of payroll costs; and the inability to adopt continuous improvement due to processes that are fragmented.

The following KPIs quantify the strength of the relationship between vendor and business, and how the vendor is performing. Looked at individually, each of these five metrics can highlight specific areas where your payroll efficiency is strong (or isn’t, as the case may be):

• First-time approvals (FTA): the percentage of payroll runs approved first-time without any changes. This is a good overall measure of payroll efficiency, that pinpoints the quality of both data input processes and gross-to-net calculations. Lower rates suggest there are issues in approval workflows, input processes or payroll data, while higher rates are a sign to look at other areas to find improvements instead.

• Data input issues (DII): the proportion of issues affecting payroll caused by data input mistakes. This metric is very useful for detecting specific problems, such as poor collection methods or data transfer errors. As these issues can be time-consuming and expensive to remedy, a poor rate here can drag down performance in other areas.

• Issues per 1000 payslips (I/1000): how many payslips per cycle are affected by issues of any type. This is perhaps the simplest of the five metrics to understand, and is therefore very handy for demonstrating payroll performance to stakeholders who aren’t payroll experts. A low rate is a reliable indicator of high payroll process accuracy.

• Calendar length: how long it takes to run payroll end-to-end per cycle. There are lots of different factors that can affect this metric, from data accuracy, to human skill levels and the extent of system integration. There is a direct link between speeding up payroll processes and good payroll efficiency, and the strength of that link is normally indicated here.

• Supplemental impact: the proportion of total payroll runs completed outside the normal payroll cycle. This metric is best for quantifying the financial strain that processing payroll can put on an organization, as high levels of supplemental runs put a lot of strain on a payroll system that is already busy. More than any of the other metric, regional and cultural characteristics influence the rate significantly.

Putting success in context

As well as evaluating payroll management and performance across each individual metric, all five are interconnected, so it’s also important to put results in context with each other in order to get a more rounded and accurate view. This is something that our recently released Global Payroll Efficiency Index report covers in detail.

As an example, in 2021 Brazil had the shortest calendar length in the world, and has done so in all three of our PEI reports, suggesting consistent payroll efficiency. However, Brazil also had the highest supplemental impact rate. These results in tandem suggest that payroll in Brazil may be being run too quickly, without adequate checks and validations being made, leading to mistakes slipping through the net that need to be corrected afterwards. This context leads us to reevaluate the overall efficiency of payroll in Brazil, and gives specific areas for payroll departments operating in this region to focus on for improvement.

What overall success looks like will vary depending on the nature of your business, industry and territory. But in general, you should look for a high FTA percentage, low DII percentage, low I/1000 rate, short calendar length and low supplemental impact rate.

In summary

These five KPIs, as a set, shed valuable light on payroll policy, performance and efficiency. Comparing them to global, regional and national benchmarks helps you understand exactly how well your payroll services are running in relative terms, and where you need to streamline and improve. To take a more detailed look at all five KPIs, as well as getting the latest benchmarks on payroll performance around the world, read our Global Payroll Efficiency Index report in full here.