10 key payroll metrics you should be tracking

1. Overtime

Overtime refers to the number of hours an employee is required to work outside of their regular schedule. It’s a legal requirement to pay employees for any agreed overtime, so it’s important that you accurately track and manage it. 

Overtime is a key payroll metric because excessive overtime often points to deeper issues within the organisation, such as understaffing, unrealistic deadline setting, or unsuitable tools and systems. By monitoring the additional hours that staff are required to work, you can better manage expectations, minimise the risk of burnout, and reduce expenses related to paying overtime.

2. Payroll processing time

Payroll processing time is an extremely important metric to track, as it helps you to identify inefficiencies that are placing unnecessary strain on your resources. Paying workers accurately and on time contributes to employee satisfaction and retention, leading to a happier, more productive workforce, and overlooking issues with this process can be damaging. 

Businesses that rely on manual processes and paper documents tend to take longer to complete payroll, and are also more likely to make errors that could lead to further delays. Instead, implementing payroll software can help you to ensure a smooth payroll process from start to finish.

3. Payroll cost

Aside from employee wages, taxes and deductions, processing payroll comprises many additional costs that need to be monitored. These costs include the employee hours required to perform payroll processes in house, payments for external payroll services, fees for software, systems and IT support, and the financial impact of any errors made. 

When tracking this payroll KPI, it’s important to compare it against the organisation’s overall revenue to see how the current process impacts profitability. Once you’ve got a good understanding of how much you spend on payroll for each pay period, you can look to optimise processes to make the most out of your available budget.

4. Employee leave

Although not directly related to payroll, employee leave is a crucial metric to track as it provides valuable insights into workforce management and resource planning. The more your organisation understands the application of authorised and unauthorised leave, the better prepared you will be to provide appropriate support to your employees. 

Monitoring employee leave and identifying any patterns can inform strategies to improve employee productivity and support retention efforts. For example, high levels of absenteeism could signal issues with employee engagement, which may lead to high turnover rates if left unaddressed. The quicker these patterns are spotted, the quicker a solution can be put in place.

5. Employee hours worked

Tracking the number of hours worked by all employees is a key payroll metric as it allows you to ensure the accuracy of wages paid. Whether employees are contracted to a set number of hours or paid according to hours logged in a timesheet, having a clear understanding of this metric will make it easier to spot errors and highlight areas of friction in the process. 

Monitoring hours worked is also essential for businesses to check that they are operating in compliance with all relevant labour laws. This includes ensuring that scheduled work hours meet those outlined in employee contracts, limiting the number of hours certain employees can work for safety reasons, and ensuring that each worker is paid at least the national minimum or living wage.

6. Cost of training

Whether for a new starter or an existing employee, training is important for career development and engagement. However, the cost of training can get out of hand if it’s not carefully planned. Inefficient training procedures can eat into profits and negatively impact job satisfaction and productivity in the long term. 

The cost of training is therefore a key payroll performance metric, helping businesses to understand the return on investment of each hire, as well as of the training activities themselves. This makes it easier to budget for the future, and to ensure that time and money spent on training is a sound investment.

7. Payroll errors

Tracking payroll errors makes it easier for businesses to spot them early and identify recurring problems. From miscalculating employee wages to submitting incorrect payments to HMRC, there are many mistakes that can occur when processing payroll. Monitoring this key payroll KPI can help you to quickly identify the root cause of the problem and put processes in place to avoid them. 

The cost of payroll errors can be devastating for a business. This includes both financial losses such as making overpayments or paying fines, and less tangible issues such as diminished employee trust or damage to the company’s reputation owing to legal disputes.

8. Total time to payroll error resolution

Following on from this, tracking how long it takes to resolve payroll errors is also a crucial payroll metric. Minimising the time taken to fix an error once identified can help to optimise payroll processes, boost employee satisfaction, and maintain payroll accuracy. 

Benchmarking the average time required provides a goal to aim for in reducing this time, and also highlights any issues that are particularly time consuming and therefore require a more efficient resolution process. If certain problems are recurring frequently and take a long time to fix, it could be worth implementing a new payroll system to eradicate the issue completely.

9. Compliance score

Ensuring HR compliance is a complex and time-consuming process, encompassing a wide range of policies and procedures. For payroll, this includes legislation relating to employee rights, equality, minimum wage, pensions, data protection and more. Failure to meet your employer obligations could lead to fines, legal action or even dissolution of the company. 

By aggregating all of your available data on compliance, including identifying relevant regulations and conducting compliance audits, you can make sure that your business is operating legally. HR and payroll software offer in-built compliance tools to streamline these checks, reducing the administrative burden while helping you to ensure accurate and lawful payment of wages, taxes and employee benefits.

10. Employee turnover rate

Employee turnover is a key payroll performance metric as it enables you to understand the impacts of staff changes on payroll costs, productivity and morale. By benchmarking employee turnover against the average rates for the country, and for your sector specifically, you can see whether you need to work harder to keep hold of talent. 

High rates of employee turnover can lead to increased recruitment and training costs, as well as a loss of productivity and employee morale, all of which can negatively impact profits. A high turnover rate is a sign that an organisation needs to implement robust employee retention strategies to improve the value of each hire. 

• What are payroll metrics?

Payroll metrics are quantifiable measures that allow a business to track and analyse various aspects of the payroll process. Payroll metrics examples include measuring the costs and efficiencies relating to employee overtime, leave and retention.

• What is payroll performance?

Payroll performance refers to the effectiveness and efficiency of an organisation’s payroll processes. This includes the timeliness and accuracy of employee pay, tax and deductions, as well as ensuring that the overall process complies with regulatory requirements. Ensuring smooth, accurate payroll processing helps to minimise the risk of errors, boosts productivity, and increases employee satisfaction.

• Are there any emerging trends in payroll metrics?

As technology continues to evolve, HR and payroll software has begun to adopt advanced analytics and artificial intelligence to predict and prevent payroll errors, as well as to automate time-consuming manual tasks. There has also been an increase in the popularity of self-serve payroll solutions and apps, allowing employees to take ownership of a variety of payroll-related tasks such as booking leave or viewing payslips.