How to Use Payroll Metrics to Improve Your Payroll Process

Improve Your Payroll Process by Using Payroll Metrics

Running payroll for small business can be expensive and time-consuming. Wouldn’t you like reduce the time and money required for payroll processing?

When you use payroll metrics, you can identify parts of your payroll process, or your general business operations, that are draining your time and money.

What are payroll metrics?

Payroll metrics measure your payroll process. Metrics are numeric indicators of how well your payroll process is doing. Payroll metrics of performance are also called key performance indicators (payroll KPIs).

Payroll metrics to use

There are not standard KPIs for payroll. Every business uses different payroll metrics. You should use payroll KPIs that meet your business’s needs. Below are suggestions of payroll metrics that might help your business.

Cost of payroll

Do you know how much your entire payroll process costs your business? Analyzing the costs of running payroll can help you identify ways to make payroll processing less expensive.

To get the total cost to run payroll, you must consider every cost that goes into payroll processes, from start to finish. How much do you pay staff who compile time cards and run payroll? What are the payroll accounting costs? How much do you spend on IT support related to payroll processing? Don’t leave out any expenses.

How you create your cost of payroll metrics will depend on what you are looking for. If you want to know how much payroll costs you over certain time periods, you’ll add up the total cost per time period. If you want to know the cost of payroll per employee, you’ll take your total payroll expenses and divide it by the number of employees you ran payroll for. If you want to see your payroll costs as a percentage of revenue, you’ll divide your total payroll expenses by your total revenue.

Time to run payroll

You can find ways to reduce the amount of time it takes you to run payroll when you analyze this payroll KPI.

Track how long your entire payroll process takes you, from the time you collect time and attendance data to the time you distribute the last paycheck. You can also track how long a specific step or a certain group of steps take.

Productivity and effectiveness

There are numerous metrics you can track to analyze your payroll process’s productivity and effectiveness:

  • How many payments do you process outside of your normal payroll cycle?
  • How many retrospective payments do you run?
  • How many payments do you need to fix or follow up on?
  • How long does it take to fix payroll mistakes?
  • How many payroll inquiries do you get, and how long does it take you to respond to them?
  • Many of your productivity metrics have the potential to show you ways to reduce the amount of time and money you spend on payroll.

6 Payroll Metrics to Use Infographic


If you have nonexempt employees, they might occasionally work overtime. Overtime work has the potential to stress and wear down workers. And, overtime wages cost you more than regular wages.

You can monitor overtime with metrics. You can measure how much overtime employees work. And you can see how much you spend on overtime wages. Once you have the metrics, you can make staffing decisions, like reducing employee workloads, rearranging work schedules, or even hiring more staff.

Employee leave

Monitoring how much time employees take off work can help you make workplace adjustments.

You can monitor how often employees use sick days or are absent from work. You can also track how many vacation days employees use. You can see how often employees take off during certain time periods. Or, you might look at the minimum, maximum, and average days used.

Training costs

It costs a lot to train new hires. You must pay employees during their training periods, but workers have low productivity while being trained.

Measure the average time it takes to train new hires. You might also calculate the total costs involved in training new employees. When you have metrics about training employees, you can start to find ways to reduce the costs.

Benchmarks for payroll metrics

Payroll metrics are useless unless you also have benchmarks, or targets. Benchmarks are what you want the metric results to be. If a metric is above a benchmark, you know you have to find ways to reduce the results of the metric.

For example, let’s say your monthly benchmark for overtime wages is $1,000. This means you don’t want to spend more than $1,000 per month on overtime wages. If you currently spend about $3,000 on overtime wages, you know you must look for ways to reduce your spending on overtime wages.

Payroll benchmarking metrics help you set goals. Otherwise, you are measuring your payroll process without any purpose.

Using online payroll software can help you reduce the time and money you spend on payroll. Use Patriot Software’s cloud-based payroll software to get your payroll metrics on target. Start your free trial today.

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