There are so many areas of modern business which have been transformed by analytics in recent years. The ability of technology and automation to drive previously impossible levels of insight means more and more business leaders are able to make better and more informed decisions.

Payroll is certainly no exception to this, and many forward-thinking organizations are embracing the improvements in efficiency, accuracy, employee experience and agility that analytics and insights can generate. However, some have been slow to adapt to the change, and many of the ingrained perceptions about payroll being purely functional and administrative are still holding firm.

At the same time, to realize all the potential these insights can bring, it’s vital to know what to look into – and where to go into more detail. This blog takes a look at why payroll analysis is so important, and the best key performance indicators (KPIs) to measure.

Why analyze payroll data?

Taking a proper detailed look into payroll data through analytics can deliver benefits not only for the payroll team but for the workforce and the wider organization too. Particular areas where it can help include:

• Error reduction: analytics can pinpoint areas where mistakes are often made (such as underpayments or overpayments), and point towards the root cause of them, so that remedial action can be taken and payroll performance improved.
  
  
• Real-time information access: being able to spot issues and patterns in real-time means that a more proactive attitude to issue resolution can be adopted. Instead of reacting to problems once they surface, they can be addressed before they have any impact.
  

• Talent retention and acquisition: when payroll analytics combines with human resources and encompasses all employee data, then it becomes possible to develop a comprehensive picture of the workforce. This allows for more seamless and integrated experiences, ideal for improving employee engagement and employee satisfaction, encouraging talent to join or stay with your business.
  
  
• Planning and forecasting: analytics can inform senior managers on how any new decisions will impact pay, and vice versa. These can include salary costs and the implications around tax and pensions; moves towards hybrid and flexible working arrangements; and hiring remote teams in new markets around the world.
  
  
• Understanding interlinked impacts: integrated analytics can expose where issues in one area might have consequences for another, such as payroll delays adding pressure to payments processes. Understanding where the roadblocks are can help drive improvements in all areas by enabling data-driven decisions.
  
  
  

Which are the best KPIs for detailed insights?

Many organizations start their analytics journey with some fairly standard KPIs, such as payroll timeliness and accuracy. The problem is that these KPIs don’t give a sufficient level of detail or insight: for example, global payroll accuracy runs at around 99.9%, which suggests very good payroll performance – even though that isn’t always the case.

For this reason, we at CloudPay compile a Global Payroll Efficiency Index (PEI) report every year, which explores payroll performance across a range of more detailed metrics:

• First-time approvals (FTA): the proportion of payroll runs approved without any amendments needed. A high FTA rate generally points to efficient payroll and data input processes, although this year’s global results suggest that FTA is fractionally declining because payroll teams have additional time to check data more thoroughly and spot errors the first time around.
  
  
• Data input issues (DII): the proportion of all payroll issues caused by mistakes at the data input stage. This pinpoints how strong a root cause data input is within any recurring payroll errors, and, if high, may indicate a need to optimize through automation, standardization and integration to resolve matters.
  
  
• Issues per 1000 payslips (I/1000): the average number of payslips with errors in every thousand – a simple metric which gives valuable insights that make payroll performance easily understandable for all stakeholders.
  
  
• Calendar length (CAL): how long a payroll cycle takes from start to finish. A short calendar length can point to good process efficiency, especially when driven by integrated technology and automation. However, a very short calendar length coupled with high DII and I/1000 can suggest that payroll is too rushed (as was found for the Asia-Pacific region in this year’s PEI report).
  
  
• Supplemental impact (SI): the proportion of payroll runs that are outside the usual cycle. This can highlight the financial and administrative impact of regular changes and corrections, although in places where SI is high for cultural reasons, analytics can help add predictability to related costs.
  
  
• Payment timeliness: this is a payments-specific KPI measuring the percentage of payments that are made on time; this has increased to 99.28% this year, which suggests that implementing greater unification between payroll and payments through technology is helping drive improvements.
  
  
  

Understanding through integration

Which metrics and initiatives are most important and relevant to a specific organization will vary, depending on the characteristics of the workforce and the wider business environment. However, it’s clear that data analytics has an increasingly important role to play, especially as payroll continues to become more strategic.

Integration is key to making this work. Having all payroll data combined with payments and human resources information, and integrated with other key business systems and analytics tools in a streamlined solution, is the best way to gain the most detailed understanding of payroll performance. A global payroll solution which incorporates analytics and benchmarking functionality can deliver this and support better visibility and decision-making organization-wide.

Take a detailed look at all of our advanced KPIs, and understand current payroll performance at global, regional and local levels, by downloading this year’s CloudPay Global Payroll Efficiency Index report.