Profit from Payroll - Payroll Benchmarking

Reproduced with permission from the book, Profit from Payroll by Tracy Angwin, CEO, Australian Payroll Association

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Benchmarking is a business buzzword, and rightly so. It’s certainly very difficult to improve a business operation if you don’t measure it to start with and understand where the process can be improved. Payroll benchmarking will help you understand whether improvements will be found by changing your processes, technology or people.

I’m often asked questions such as how many payroll professionals would it take to manage a certain size payroll, or what proportion of workers are paid fortnightly as compared to weekly, where payroll should report internally or whether keeping payroll in-house or outsourced is the right decision.

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The Australian Payroll Association has produced an annual payroll benchmarking study since 2013. This is a comprehensive payroll benchmarking study from which employers can draw conclusions and see trends in the payroll sector.

What I am particularly interested in is the actual costs in delivering a payroll function including staffing costs and technology. With the globalisation of the payroll industry, I’m also very interested in how offshoring some payroll functions impacts payroll benchmarking and how organisations can work to ensure that those processing their payroll offshore keep up to date with the payroll knowledge required to retain payroll compliance.

Organisations are increasingly concerned with cost, but as discussed earlier in the book, it’s a balance between compliance and efficiency and any discussion of costs needs to be understood in this context. Certainly if any expenditure is required to improve the payroll function, it is expected that a solid business case is prepared to justify the capital cost and prove a return on investment. This is where payroll benchmarking is particularly useful.

In terms of costs, the benchmarks that you should measure are costs per payslip produced as well as the annual cost per employee paid.

The Australian Payroll Association’s latest Payroll Benchmarking Study was published in February 2017. The survey participants represented 2,000 organisations representing 2,248,577 employees and 68,909,348 payslips per annum. This makes it the largest study of its type in Australia.

Payroll benchmarking is a balancing act between the need for governance and compliance in the payroll function versus the cost of delivery. It’s only at the intersection of compliance and efficiency that organisations can rest easy that they have a highly valued payroll operation that is providing tangible value to their organisation.

There are only three things that cause payroll problems. It’s only when you have all three areas working together as best practice that you can find that payroll intersection. The three problem areas are People, Processes and Technology.

If two or more of these areas are substandard, you can have any combination of problems in your payroll that typically puts an organisation at financial, governance and compliance risk.

People

Without the right people in your payroll team, it is impossible to deliver a high quality payroll operation. Good payroll people are hard to find, they expect and deserve high wages and are generally not looking for new jobs because they are being actively retained by their employer.

The best payroll professionals are qualified, preferably with a Certificate IV in Payroll Administration or Diploma of Payroll Management, have great attention to detail, see customer service as a critical part of doing their job well, accept accountability, understand the need for discretion, are process driven and are always thinking about continuous improvement.

Most payroll mistakes are made because the payroll team genuinely don’t have the knowledge or training that they require to do their job. Regular training is critical as payroll legislation, thresholds and rates change every year.

The most valuable and sought after skills for payroll professionals now and in the future is a solid sense of customer service. Many payroll professionals are very competent at a technical level, but without the ability to communicate, that knowledge is unable to be shared widely in the business.

Technology

Not so long ago the most technologically advanced employers were using bundy clocks and cards. These were being ‘extended’ in the pay office and keyed into payroll systems.

These days technology is being developed at a rate unlike we have ever seen before. There is now payroll technology which uses wireless internet services and geo-tracking to those being delivered on handheld devices and smart phones. The key is to use technology that works with the specific requirements of your organisation and not just for technology’s sake.

Processes

Contrary to popular opinion relating to just ‘doing the pays’, a payroll process should be developed and constantly improved to consider risk, fines, efficiency and governance. If your processes aren’t structured, the best people and technology won’t provide you with the payroll outcomes you are looking for.

All these three things have an effect on compliance and efficiency in your payroll operation. Once all are in alignment you are best placed to maximise all three areas of payroll and turn a business cost into an operational asset.

Key points

• You need to know your benchmarks in order to improve them;;
• Benchmark your payroll operation in conjunction with understanding your intersection between compliance and efficiency;
• Benchmarking will help you find efficiencies in your processes.

Checklist

• Determine your payroll operation costs if you haven’t already;
• Determine your payroll operation costs if you haven’t already done so;
• Compare with benchmarking data;
• Research technology and payroll services which would improve the efficiency or compliance of your payroll operation.

Author note:

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