Companies typically define payroll success by the fulfillment of service level agreements (SLAs) for accuracy and timeliness. But how did you get there? How much effort and resource did it take? How many late nights to meet the payroll cut off? First, look beyond the big key performance indicators (KPIs), and identify the actions needed to improve payroll performance using data analytics.
We’re all familiar with the challenges involved in making global payroll work across an international business—standardizing data, processes, and systems across territories; dealing with multiple statutory and compliance regimes; and the critical imperative to maintain cybersecurity.
Businesses look to data to show outcomes, increase efficiencies, drive cost reduction, and achieve consistencies across the enterprise. From my experience with payroll practitioners across the world, I know that putting payroll data into action doesn’t happen by accident. It requires a strategic decision to develop systems and analytics that will consolidate payroll, HR, and finance data, and then integrate it to create reports that will support and drive actions and decisions and move a business forward.
Corporations should begin with standardizing and consolidating payroll, HR, and finance data across the entire business. These key functions must be absolutely aligned around consistent data sets, with real-time data visibility and access to meaningful analytics and reporting. Businesses that achieve this are better able to use their data to drive performance within the payroll function itself, as well as the business. Achieving compliance, controlling costs, managing payments and funding, consolidating vendors, and meeting the expectations of employees to be paid on time and accurately are strategic requirements of any business.
As a customer said to me very recently, “The amount of data and reporting available at our fingertips is something you cannot put money on.”
How Payroll Data Can Drive Operational Performance
Businesses that outsource payroll operations to an expert payroll provider will have SLAs in place, most commonly covering metrics such as payroll accuracy and timeliness. These SLAs allow businesses to understand how well their payroll operation is performing—or do they?
While the bare facts of SLAs like these are perfectly valid, they only scratch the surface of the operational condition of an organization’s payroll. They don’t offer enough insight into a team’s performance, how the vendor is performing, and how well the two parties are interacting and collaborating with each other.
There are some common issues that need to be addressed, such as the following:
- The integrity of payroll data may be compromised
- Reporting is only available at the local payroll level, rather than globally
- There is no way to gain full visibility of global payroll costs
- Fragmented processes make it impossible to achieve continuous process improvement
Without a consistent audit trail of each step in the end-to-end payroll cycle—from data-in to paystubs out, payments, and the GL—it is impossible to truly understand how the system is working, let alone how performance could be improved.
Some Favorite Payroll Metrics
The following are detailed SLA metrics that can offer real insight into how well—or not so well—your payroll system is working:
- First-time approvals: After the payroll provider has run its own data collection and processed and validated functions, payroll is then passed to the customer for their own validation and approval. This metric is the percentage of payrolls passed by the customer without any amendments required.
- Data input issues: The percentage of the time that payroll runs without any issues about data input surfacing from any source.
- Issues per 1,000 paystubs: When the customer checks through the payroll sent by their provider for approval, this metric tracks the average rate at which errors crop up that need action to remedy. These issues can highlight overall improvements required at the provider’s end, such as configuration changes or staff training.
- Calendar length: The amount of time—normally measured in days—between the cut off for the business making any changes to the payroll and the payday itself. The shorter this length of time can be made, the more time a business must bring in more data to the payroll run. With more time, the stress of deadlines on HR and payroll teams can be reduced.
- Supplemental impact: Also known as “off-cycle run,” which is the percentage of payroll running outside the regular schedule. This could be due to staff leaving, expenses needing to be reimbursed quickly, and a variety of other reasons—but all of these have cost and administrative implications that can quickly build up. For administrative and cultural reasons, it’s worth noting that within multinational businesses, this issue can often be much bigger in some territories than in others.
Act on What Data Reveals
Having a willingness to believe what the data is showing and then collaborating across teams to take appropriate action is critical to business success. This requires strong working relationships between customers and vendors as well as cross-functional teams within each organization.
Our operational teams hold monthly service reviews to examine payroll processing metrics inside the analytics tool. We’re actively looking for areas where an issue has occurred so we can dive into the details and jointly align on root cause and improvement solutions. This continuous improvement approach allows us to review the impact of process improvements, track trends, and gain perspective by using specific benchmark comparisons.
Examples of process improvements have included the following:
- Off cycle reduction in Brazil by aligning holiday pay runs into scheduled slots agreed with local customer HR
- Data input errors reduced by identifying a new customer team member who required additional training and support
- Data output errors reduced by identifying a gap in the understanding of a French accruals calculation and holding a workshop
Integrating Payroll Data Supports Broader Business Goals
When an organization tracks the end-to-end payroll process, and then digs into those metrics, it’s not only compliance that will be improved, but also efficiency and productivity. When that data is then aligned with HR and finance systems, a broader benefit will be felt across the business, with more informed and coordinated decision-making for the entire organization. Part 2 of this article will include information on the following:
- Cost management: Understanding the consequences of certain actions on the cost-effectiveness of different departments and territories
- Time and resource management: Comparing different countries’ operations to spot differences and understand what works well—and what doesn’t
- Regional performance benchmarking: Setting standards beyond borders to ensure that every area of a business is making the grade
By understanding the full potential of insight that’s hiding within your payroll data, the strategic decision to standardize, unify, and streamline your global payroll becomes straightforward. At the same time, your employee experience can be enhanced with more sophisticated employee self-service (ESS) tools. Progressive employers have their employee experience very much front of mind right now, and the opportunities presented by innovative FinTech solutions, which will bring yet more data insight.
I am talking about a change in mindset, in terms of what payroll data is used for and the level to which it can be leveraged. No longer should payroll sit in its own silo. It should be part of a wider and more integrated ecosystem with the enterprise where it can play a leading role in driving operational and organizational change that is both substantial and meaningful.
If you have the right technology and vendor partnership in place to make it happen, the potential of the data within a unified global payroll system can be unleashed.
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John Pearce is Senior Vice President of CloudPay. He is responsible for CloudPay’s global payroll and treasury services. Pearce leads an operations function that spans 11 service centers running payroll for more than 1,500 global entities in more than 130 countries. His teams deliver a 99.9% SLA for accuracy and timeliness, working with customers who want to transform the way they do global payroll, payments, and the employee experience.