Running payroll is more than cutting employees a check for their hours worked. Payroll takes time. A lot goes into calculating and withholding taxes and deductions. There’s room for mistakes and opportunities for improvement. You can use payroll KPIs, or key performance indicators, to analyze how well you manage payroll.
How long does it take you to run payroll? What do you spend on payroll administration? How many errors do you make?
You can answer these questions (and more!) when you monitor common payroll KPIs. Use your payroll statistics to streamline payroll operations and reduce costs.
What are key performance indicators?
Key performance indicators are quantifiable performance metrics. Businesses use KPIs to track progress toward specific goals and objectives.
You can use KPIs across multiple areas in your business, including:
- Financial KPIs: Track your company’s financial performance. Examples include revenue, profitability, and return on investment (ROI).
- Customer KPIs: Measure your customers’ satisfaction and retention. Examples include customer satisfaction ratings and Net Promoter Score (NPS).
- Employee KPIs: Monitor employee performance and productivity. Examples include employee satisfaction, turnover rates, and return on investment (ROI).
- Process KPIs: How efficient and inexpensive are your business processes? Examples include production efficiency, quality rate, and cycle time.
- Marketing KPIs: Track the effectiveness of your marketing efforts. Examples include website traffic, social media traffic, and cost per acquisition (CPA).
Set KPIs that reflect your business goals. Need help setting business goals? Use SMART goals that are specific, measurable, achievable, relevant, and time-bound.
Come up with strategies to reach your goals. Regularly monitor your KPIs and make changes as needed.
4 Payroll KPIs to track
Payroll—including employee wages and employer contributions—is arguably one of your company’s largest expenses. Running payroll also takes time each pay period, especially if you do payroll by hand. Not to mention, you’re human—and humans make mistakes.
Because so much goes into running payroll, you can establish and monitor key performance indicators to improve the process. Payroll KPIs can help you reach business goals, like making fewer mistakes, reducing costs, and streamlining processes.
Common KPIs to track include:
- Time to run payroll
- Payroll costs
- Payroll accuracy rate
- Overtime
Learn more about these six payroll KPIs and how they impact decision-making and accountability below.
1. Time to run payroll
The time to run payroll, or payroll processing time, KPI is the total time it takes you to process payroll for your business. The less time it takes to run an accurate payroll, the more efficient your payroll process.
You can find your payroll processing time by counting the total minutes (or hours) you spend on payroll processing per pay period.
Common pay frequencies include:
- Weekly (52 payroll runs per year)
- Biweekly (26 payroll runs per year)
- Semimonthly (24 payroll runs per year)
- Monthly (12 payroll runs per year)
You can multiply the time it takes you by how many payroll runs are in a year to get your annual payroll processing time.
Let’s say it takes 30 minutes to run payroll each pay period. You pay employees weekly. You spend 1,560 hours running payroll annually (30 minutes X 52 payroll runs).
How long does it take you to run payroll? Ten minutes? Thirty minutes? An hour? Decrease the time it takes to run payroll and increase efficiency with payroll software. Customers who use Patriot Software average less than three minutes when running payroll.
2. Payroll costs
Your payroll expense includes the total cost of processing payroll. Your payroll costs typically include one or more of the following:
- Payroll software
- Payroll administrator’s salary
- Office space
- Direct deposit
- Check stock
- Ink
Calculate your payroll costs by using the following formula:
Cost Per Payroll Transaction = Total Payroll Costs / Number of Payroll Runs
Let’s say you use software to run payroll. Your monthly bill is $100, and you run payroll twice per month. Your total cost per payroll transaction is $50.00 ($100 monthly bill / 2 payroll runs per month).
Decrease your per-payroll transaction cost by switching to affordable payroll software that doesn’t charge per payroll run.
Switch to the payroll software that tops the charts in affordability. Plus, enjoy unlimited payroll runs, free direct deposit, and more.
What about employee costs? Get a more in-depth look at your payroll costs by adding employee wages, employer payroll taxes, workers’ comp insurance, benefits, and other related expenses. This will show you the total amount you spend on payroll (not just the administrative cost of running payroll).
3. Payroll accuracy rate
Running accurate payrolls is key to legal compliance and employee satisfaction. Your payroll accuracy rate is the percentage of payroll calculations (wage, tax, deductions, etc.) that are correct.
The higher your payroll accuracy rate, the better your payroll process. Using a reliable payroll system, like software, can lead to higher accuracy rates and minimize the need for time-consuming corrections.
You can find your payroll accuracy rate by using the following formula:
Payroll Accuracy Rate = (Number of Accurate Payrolls / Total Payrolls Processed) X 100
Let’s say you ran payroll manually last year 26 times. Of those 26 payrolls processed, 22 were accurate. Your payroll accuracy rate is 84.62%:
Payroll Accuracy Rate = (22 / 26) X 100
Payroll Accuracy Rate = 84.62
This year, you switched to payroll software, which now handles calculations for you. So far, you have processed 10 payrolls. Of those 10 payrolls processed, all 10 were accurate. Your payroll accuracy rate is 100%.
4. Overtime
Under the Fair Labor Standards Act, nonexempt employees are entitled to overtime pay, or time and a half, for any hours worked beyond 40 in a workweek.
You can track overtime hours worked as a key performance indicator. Overtime as a payroll KPI can help you make decisions like whether you need to:
- Hire new employees
- Limit overtime hours
- Increase your overtime budget
Heads up! Beginning July 1, 2024, four million new workers will be entitled to overtime pay thanks to the 2024 new overtime rule.
How to use your small business payroll statistics
Establishing and monitoring payroll KPIs can give you valuable insights into your payroll process. But, don’t gather metrics and ignore them.
Use your payroll statistics to make changes and improve operations and efficiency. Get started with the following steps:
- Identify the payroll KPIs you want to track
- Determine your objectives for each KPI
- Collect and analyze necessary data
- Use the data to make improvements
- Review and adjust KPIs
