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 elevate in importance when you consider how they formulate 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:

  1. The big one, of course, is the actual staff cost such as wages and salaries.
  2. Making the pay run happen and all the other associated employee management costs are not for the faint hearted either.
  3. 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

Payroll KPI Wages to Turnover

 

Cost of Payroll per employee

This can be measured often and may be useful to do after each pay run is complete as quick checking point indicating no unusually large payments were made.

Total Payroll Amount / Number of Payees

Payroll KPI Payroll per Employee

 

Team Productivity Rate

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 KPI Revenue per Employee

 

 

Payroll Process Costs

You would 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 cost, 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

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

 

Just make sure to put this in the right context around 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 to have easily 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 can 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, You build the KPIs using any formula. Then, the KPIs can be added to any report to add value or simply run as a trendline chart over a time period. 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.

 

In Summary

Keep in mind on 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 last month’s or last year’s results.

So, start tracking your Payroll KPIs and HR Metrics.