Richard Butterworth | Senior Business Development Manager, CloudPay

In all walks of life, there’s a feeling of great satisfaction when you get something right at the first attempt. The same principle applies to payroll, too: if a payroll run can be processed without any need for amendment or correction of errors, then it shows that a payroll team is doing a great job. And that’s before considering the positive impact that can have on an organization as a whole.

But how can this success be measured, and why is it important? In this blog, we’ll explore the vital KPI that is First Time Approval, and why it’s so crucial to keep track of it.

What is First Time Approval?

As a metric, First Time Approval is the percentage of gross-to-net calculations that are approved by the customer when they make their initial review, without making any amendments. To work out the FTA rate within an organization, we take the total number of payroll runs, subtract the amount that contained at least one rejection by the customer and divide that figure by the total number of payroll runs. This answer is then multiplied by 100 to give a First Time Approval rate as a percentage.

First Time Approval rates are influenced by a variety of different factors. Data that is inaccurate, incomplete or that is simply received late can all lead to errors being made within a payroll run, as can human input error. Alternatively, if the data itself is fine, then the issue may lie within the approval dropdown#toggle show.dropdown->optimize#highlightActiveTerm hide.dropdown->optimize#clearActiveTerm” data-dropdown-target-param=”#dropdown_term_224401747″ data-dropdown-placement-param=”top”>payroll services are. If your FTA percentage is high, then that points to a well-oiled dropdown#toggle show.dropdown->optimize#highlightActiveTerm hide.dropdown->optimize#clearActiveTerm” data-dropdown-target-param=”#dropdown_term_224401771″ data-dropdown-placement-param=”top”>payroll cycle end-to-end and is a critical metric, which depends on a variety of factors. These range from data accuracy through subject matter expertise to system integration, and each factor is important to understanding and improving the performance of payroll as a whole.

Supplemental impact – When supplemental runs are needed because of payroll inefficiencies, the cost and inconvenience of payroll quickly adds up. Understanding the volume of affected runs can help businesses minimize negative impacts.

FTA performance across the world

When a First Time Approval Rate is relatively low, that means payroll is being held back by continually having to re-do payroll runs with new or corrected data, or by having to recheck the original data to find inaccuracies. This slows down the whole process of executing payroll, with knock-on effects throughout a business. But it’s also worth bearing in mind how regional or cultural characteristics can influence what a ‘good’ FTA rate looks like, and our recent Payroll Efficiency Index report highlighted where some countries have higher average FTA rates than others. 

Within our findings, the United Kingdom and Australia ranked among the lowest performers for FTA, meaning that companies in those countries were having to make more corrections and do more re-runs than in most other territories. However, in both cases, there are particular circumstances at play: in the UK, payroll customers generally anticipate corrections and so there is no major expectation to always get payroll approved first time; in Australia, meanwhile, payroll regulations are particularly complicated, making it harder to get everything right at the first time of asking.

The good news is that companies around the world are taking FTA increasingly seriously, and are taking measures to improve their rates. Our PEI report discovered a global increase of 1.89% between 2018 and 2020 (and 4.32% in the Asia Pacific region), while one financial services company that works with CloudPay has set a global target of reaching an FTA rate of 80%. In a world that is increasingly globalized and digitized, First Time Approval rates have an important part to play in ensuring that everyone gets paid on time, accurately and fairly.

Therefore proving that First Time Approvals is one of the most vital KPIs within payroll as well as KPIs such as these provide insight into how a vendor is performing, how well the two parties are working together, and potentially highlighting a number of issues which require remediation. 

This is explored in more detail within our new report – the CloudPay Global Payroll Efficiency Index. Download your copy of the report here. 

Richard Butterworth | Senior Business Development Manager, CloudPay