Mick Devine, founder and CEO of Calxa
Payroll and staff management has a big impact on small businesses. Few areas quantify costs, effort, and sentiment better than key performance indicators (KPIs). Payroll KPIs, in particular, elevate in importance when you consider how they change decision-making in your business.
Not only are payroll costs a significant part of most organization’s outgoings, but managing employees and payroll obligations can be time-consuming. So you’ll want to find ways to track and measure your payroll costs against three business metrics:
- The big one, of course, is the actual staff cost such as wages and salaries.
- Making the pay run happen, and all the other associated employee management costs are not for the faint-hearted either.
- The silent contributor—company culture. If you can measure some 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. Here we talk about the cost of maintaining a workforce. In other words, these costs are directly related to the employment of your staff.
1. Payroll as a percentage of revenue
Also known as the wages-to-turnover ratio, run this as a trend chart month by month. Alternatively, it could be compared annually, year by year.
Total wages / Total company revenue
2. Cost of payroll per employee
This can be measured often, after each pay run is complete, as a quick checkpoint to indicate no unusually large payments were made.
Total payroll amount / Number of payees
3. Team productivity rate
This is also known as revenue per employee. Essentially, this metric helps measure the efficiency of the workforce over time.
Total company revenue / Total number of staff
Payroll process costs
4. Calculating the cost of overtime
An increase in overtime can cost you. It can be seen as a sign of absenteeism but also inefficiency in your 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’ll want to track a few other metrics.
- Payroll processing time
- The number of submitted payroll inquiries.
- The time it takes to resolve payroll inquiries
- The number of retrospective payments processed
Measuring company culture
There are a few signs that can indicate a happy and healthy workplace. Keeping an eye on your company’s absenteeism rate is a good start. Similarly, you might track if your staff is taking PTO, as a way to gauge work-life balance. A happy employee is a productive member of your team.
5. How to calculate the absenteeism rate
Absenteeism can be a big problem, especially for small businesses. But keeping tabs on this isn’t as hard as it sounds. Follow the number of sick days used within a period. For this metric to make sense, measure over an extended period like a quarter or a year.
Number of sick days used / Unused (entitled) leave
Lost workdays / Total of number of workdays available
Additionally, you can run surveys to gauge other cultural parameters such as satisfaction levels with employee benefits like healthcare, remote work policies, and flexible scheduling. Identifying the importance of these will allow you to adapt your employment package.
6. 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. Just make sure to put this in the right context around busy seasons like the summer or Christmas. For instance, depending on the results of these KPIs, you may want to adjust policies. After all, if you don’t know there is a problem, you can’t fix it.
Number of days leave taken / Unused (entitled) leave
Getting started with payroll KPIs
Ultimately, numbers don’t mean anything if they aren’t consistent and accessible. And if your time tracking, scheduling, HR and PTO, and payroll solutions all work with your reporting tool, you’ll have measurements at your fingertips.
On their own, some payroll KPIs aren’t as effective unless compared to a business or industry benchmark. KPIs play an important role in your business, so the sooner you start measuring, the better. Whether you’re tracking metrics on a spreadsheet or you’re automating your KPI calculations, with the right tool, the process is simple.
Build KPIs using any formula, then add them to any report or run them as a trendline chart over time. The best part: You can set a workflow to deliver KPI reports directly to your inbox. Whichever way you’re tracking, it will help you make better decisions in the future.
Mick Devine is the founder and CEO of Calxa, a QuickBooks Online App specializing in budgeting, cash flow forecasting, and KPIs. As an accountant, Mick has a long history of working with businesses and NGOs as a treasurer, board member, consultant, and advisor. Frustration with spreadsheets led him to develop Calxa, now the most widely used board reporting software in the nonprofit sector in Australia and New Zealand.