Payroll and staff management have a big impact on small businesses. There are few areas better suited to quantifying costs, effort and sentiment with the use of Key Performance Indicators (KPIs). These Payroll KPIs increase in importance when you consider how they influence decision-making in your business.
Not only are payroll costs a significant part of most organisation’s outgoings but managing employees and payroll obligations can be time-consuming. Being such a big part of the business, you want to find ways to track and measure your payroll costs. There are three main aspects of HR metrics that matter to a business:
- The big one, of course, is the actual staff cost such as wages and salaries.
- Making the pay run happen and all the other associated employee management costs are not for the faint hearted either.
- The silent contributor – Company Culture. If you can measure some or parts of this, the benefits to both, the team and the company can be substantial.
Payroll KPIs as a Business Gauge
Structured well, KPIs can make for good business insights that provide you with a gauge on how your business is tracking. So, let’s have a look how to go about this.
Payroll Costs Easily Add Up
Here we talk about the expense of maintaining a workforce. In other words, these costs are directly related to employment of your staff.
Payroll as percentage of revenue
Also known as Wages to Turnover ratio, you will find your accountant may refer to this KPI some time. This can be run as a trend chart month-by-month. Alternatively, it could be compared as an annual figure, year-by-year.
Total Wages / Total Company Revenue
Cost of Payroll per employee
This can be measured often and may be useful to do after each pay run is complete. It’s a quick checkpoint indicating no unusually large payments were made. Rather than a monthly number, which can be distorted by the number of pay periods, consider doing this per pay run.
Create a Metric for Pay Periods per Month and use a repeating formula to calculate how many there are each month, whether you pay weekly or fortnightly.
(Total Payroll Amount / Pay Periods) / Number of Payees
Team Productivity Rate with Payroll KPIs
This is also referred to as Revenue per Employee. Essentially, this metric helps measure the efficiency of the workforce over a period of time.
Total Company Revenue / Total Number of Staff
Payroll Process Costs
You could be saving a ton of time using a tool like TSheets for time tracking and employee scheduling. Regardless, you want to be able to quantify your effort and track the impact this has on your business. These HR metrics are perfect just for that.
Calculating the Cost of Overtime
Increase in overtime can cost you dearly. It can be seen as a sign of absenteeism but also inefficiency in your rostering and scheduling practices.
Total Cost of Overtime or Total Hours Overtime Worked
You may be interested in reducing your administrative costs, if you have a larger payroll. In this case, you want to track a number of other metrics:
- Length of time it took to process the pay run
- Number of submitted payroll enquiries
- Time it takes to resolve payroll enquiries
- Count of retrospective payments that had to be processed
Measuring Company Culture with Payroll KPIs
There are a few signs that can be indicators of a happy and healthy workplace. Keeping an eye on your company’s absenteeism rate is a good start. You may find another good tracker is seeing if your staff are taking their holidays to give them a good work/life balance. A happy employee is a productive member of your team.
How to Calculate Absenteeism Rate
Absenteeism can be a big problem. Especially for small businesses. To keep a tab on this is not as hard as it sounds. You simply follow the number of sick days used within a period. For this measurement to make sense, it is best done over an extended period like a quarter or a whole year.
Number of Sick Days Used / Unused (Entitled) Leave
Lost Work Days / Total of Number of Work Days Available
Additionally, you can run some surveys and to gauge other cultural parameters such as rating satisfaction levels with different employee benefits:
- Health Care Subsidies
- Work from Home Availability
- Flexible Hours for Parents
Identifying the importance of these, will allow you to modulate your employment offering.
How to Calculate the Leave Rate
Tracking this metric as an aggregate, can give you an idea if your team is getting the work/life balance right.
Number of Days Leave Taken / Unused (Entitled) Leave
However, just make sure to put this in the right context. Essentially, consider periods like the summer holidays or when the business is closed for Christmas or similar.
For instance, depending on the result of these KPIs, you may want to make some adjustments to policies. After all, if you don’t know there is a problem, you can’t fix it.
Getting Started with Payroll KPIs
The first thing you want to make sure, is that you have easy access to these numbers and they are tracked consistently. If you are processing your payroll through TSheets, you will find these measurements are at your fingertips.
You may want to better understand the role of KPIs in Business. You could then use the formulas provided and track these KPIs manually in a spreadsheet.
As an alternative, you can automate some of these calculations and the deliver of monthly reports by using a tool like Calxa.
The process is quite simple. Firstly, track the non-financial numbers using Metrics. Then build the KPIs using the formulas above. After that, the KPIs can be added to many of our reports to add additional value. Or, simply run as a trendline chart for any number of months, quarters or years. Ultimately, the best part: you can set a workflow to deliver these KPI reports directly to your inbox.
Whichever way you are going to do your tracking, it will help you make better decisions in the future.
Keep in mind one thing. On their own, some of these Payroll KPIs and HR Metrics are not very effective unless compared to a benchmark. This could be an industry average. Or, it could be a comparison to your budget or last year’s results.
So, start tracking your Payroll KPIs and HR Metrics. Use this video to guide you along the way.