You need metrics, said Linda Obertin, vice president at Fidelity Investments, who led a workshop at the American Payroll Association’s Annual Congress in May.
Metrics are information, and information is power, she said. Metrics can show how the Payroll department adds value to the company.
Metrics can show how managers manage, trackand employee morale, support decision-making (for example, by using data to justify a new hire) and identify trends. Key payroll metrics, according to Obertin, can be broken down into the following categories:
- Cost/volume: The percentage of payroll/administrative costs, the average number of payroll payments per employee, the percentage of employees on direct deposit and those who receive paper checks, the number of special payments (i.e., off-cycle checks) and the number/percentage of manual checks vs. system-generated checks.
- Taxes: Employer taxes as a percentage of total wages, the percentage of penalties/interest paid on total taxes and total gross wages, the number/percentage of tax abatements and the number/percentage of late payments.
- Quality: The percentage of errors by type, including Payroll department error, manager/supervisor error (e.g., whether time sheets were timely and accurate), employee error (e.g., they didn’t submit their time sheets to their supervisors), the number of Forms W-2c/W-3c filed and the number of amended tax returns filed.
Obertin used this example of how metrics can add value to the Payroll department: Metrics can show that 86% of employees receive their pay electronically and 66% get electronic pay statements, which results in a 12% budget savings. Metrics could further yield that 78% of employees were highly satisfied, 15% were moderately satisfied, and 7% were somewhat satisfied.
Obertin advised the audience to start small, by using Excel spreadsheets or even simple sticky notes. The key, she said, is to use the right metric—describe what you’re measuring, how often you’re measuring, the unit of measurement, the current range of values considered normal and the best possible value for the metric.
Your data should tell the whole story, because once your data leave your hands, you lose control, Obertin warned.
Metrics will vary from company to company. But, in general, to implement a metrics program, Obertin highlighted these six steps:
- Define your outcomes. In other words, always begin with the end in mind.
- Define the metrics you’ll use to measure success.
- Implement and refine the process and modify behavior to drive success.
- Collect data to support your metrics.
- Report and analyze your metrics.
- Take corrective action as needed.