Organisations use high-level KPIs to focus on the overall performance of the business. Meanwhile, low-level KPIs are prominently used to target processes in different departments such as finance, payroll and HR.

Whether you’re a standalone employee or part of a larger payroll team, these payroll performance metrics will provide you with the knowledge to track the success of key business objectives, ensure payroll resources are distributed correctly and help support your employees.

What are payroll KPIs?

In short, payroll KPIs are performance measurements that track processes and analyse respective costs to indicate the full accuracy of the process. While many businesses use different payroll metrics, it’s vital to track the fundamental KPIs to avoid any payroll inaccuracies that impact company resources and affect your people.

Building a foundation of accurate payroll processes will not only provide an indicator of how well they are performing but act as cost-benefit analysis for any of your business’ compensation-related costs.

The Cost of Payroll

Ever wondered how much your entire end-to-end payroll process costs your organisation? The cost of payroll metric will analyse the total spend and provide you with ideal solutions to make running payroll less expensive.

To determine your true payroll cost, you need to consider all the people in the organisation that contribute to any element of your payroll processes. This can range from the salaries of staff who compile timesheets for input, payroll accounting costs and any company expenses. Below is a full list of factors that could be identified to determine your cost of payroll.

• The salary of staff who complete timesheets for payroll input.
• IT support relevant to any payroll processing.
• Company expenses.
• Payroll accounting costs.
• Implementing and maintaining HRMS software or related systems.
• The salary of management for time spent on payroll processing and enquiries.
• The salary cost for time spent on any transactional payroll processing.

At the end of the day, how you create the cost of payroll metrics depends on exactly what you’re looking to get out of the data. If you want to see your payroll costs as a percentage of revenue, divide your total payroll expenses by your total revenue. Whereas, if you want to know the cost of payroll per employee, take your total payroll expenses and divide it by the number of employees you ran the payroll for.

Productivity & Effectiveness

A metric which can improve every aspect of the payroll department is productivity. Here, you’ll look into the specifics of the payroll departments productivity, while identifying individual performance and contribution. The standardised way to measure productivity is to compare the ratio of payroll employees to the number of employees being serviced. To aid your measurement, here’s a list of metrics which help identify any issues affecting productivity.

• The number of payments processed per payroll processor
• The number of payments processed outside of the normal payroll cycle.
• The number of retrospective payments.
• The time it takes to resolve input that contains unclean data.

While measuring productivity, it’s also widely considered beneficial if effectiveness metrics are evaluated in correlation. Effectiveness intends to outline whether your payroll department is achieving its desired outcomes within a timely manner and provides the factors that could be influencing how effective an employee is.
• Any payroll errors including overpayments
• Payroll enquiries vs the time it takes to respond to them.
• How much automation is involved in the processes i.e. forms/transactions, employee self-service, reporting, payslip production.
• The overall time for integration and maintenance of HMRS and related systems.

As shown, there are numerous ways metrics can help you to track and analyse the productivity and effectiveness of your payroll process, and it’s important to think about the unique methods which are central to your business that will show you how to reduce the amount of time and money spent on these processes.

Overtime

According to the Independent, one in four employees overwork by at least 10 hours each week. With this, overtime carries the potential to stress and wear down employees, providing increased pressure on payroll to ensure no mistakes are encountered when calculating overtime costs to reward their people.

The most efficient way to calculate this metric is to add up the total overtime cost paid out, then analyse payroll cost by departments and teams. Whilst doing this, you’ll be able to measure how much overtime employees work and equally, the time spent on calculating overtime wages.

Once you are positive you have the hours counted correctly, you’ll be able to make informed decisions based on staffing, reducing employees’ workloads, altering overtime schedules and identifying the need to hire more staff. Likewise, you can pinpoint if there are any performance measures your team can take to become more effective when calculating overtime.

Employee Leave

Employee absence costs UK businesses over £14 billion each year, which is astonishingly £554 per employee. This cost justifies the importance of monitoring employee absenteeism in order to make workplace adjustments that can radically reduce costs and improve productivity.

While some companies report on their sick pay, the other direct costs related to absences are often overlooked and unrecognised. Statutory sick pay is an excellent example of this, to work out an employee’s SSP, follow the example below.

The weekly rate (£94.25) is divided by the number of qualifying days in a week and multiplied by the number of days for which an employee is entitled to. For example, an employee was off sick for 7 qualifying days (of which SSP will be paid for 4 of them). Therefore, the sum to calculate the employee’s SSP entitlement looks like this:

£94.25 / 7 qualifying days = £13.46 of SSP per day.
£13.46 x 4 days = £53.84 in SSP.

Training costs

Throughout the onboarding process, training new employees can be expensive. While it will provide many long-term benefits for your organisation, the initial cost and productivity levels of employees throughout training can be detrimental.

To generate this key payroll performance metric, simply divide the total training cost by the number of trainees throughout the process. It’s vital to remember the total training cost should include the costs for instructors, facilities, equipment, travel, hospitality, food and the total time it takes to train new hires.

Once you’ve got a clear image of each cost, you’ll be able to identify ways to reduce expenditure by eliminating elements or transitioning to new processes to reduce the overall cost.

Number of errors

In the life of a payroll professional, it’s crucial to eliminate all the errors from their process. If not, each and every mistake can lead to serious consequences for the entire organisation. We’ve listed five different payroll KPIs up until this point, but you’ll never be able to use them to full effect and gain accurate data if your processes are riddled with errors. To ensure an accurate payroll process, consider the elements listed below.

• Tax and fee payments across each level.
• Accuracy of time tracking for hourly compensation.
• The differences in salary types i.e. hourly, commission, contractor.
• Applications for all the different types of leave categories i.e. maternity, sick leave.

Whilst these are efficient ways to avoid errors and improve payroll performance, Natural HR’s fully integrated payroll engine provides everything you need to ensure your people are paid on time while easily building up to an employee’s final gross pay and automatically producing payslips.

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In this post, Natural HR explores Statutory Sick Pay, your employee’s eligibility, how it’s calculated, and how much is SSP per day. Keep reading to find out everything you need to know about Statutory Sick Pay.

Is your employee eligible for Statutory Sick Pay?

In order for an employee to qualify for SSP, an individual must be classed as an employee at your business, have been ill for four days in a row (including non-working days), earn an average of at least £118 per week, and they must inform you as their employer that they’re sick before your deadline (i.e. before 9 am on the first day they are absent) or within 7 days if you don’t have one.

The average earnings threshold to be eligible for SSP is calculated over a period of eight weeks before the employee fell ill.

Current legislation states that employees are entitled to a minimum of £99.35 per week as SSP for a maximum of 28 weeks.

How is sick pay calculated?

To work out if your employee is eligible for SSP, the 8-week period prior to their first day of absence is used as a reference period to calculate their average pay.

Here is an example: James earns £1,600 before PAYE tax, NI and other deductions per month. He fell ill on Wednesday, 8^th January 2022.

To work out his eligibility for SSP, you need to identify the last payday before the first day of sickness and the payday at least 8 weeks before he fell ill. James is paid on the last working day of the month; therefore, the relevant period is 31^st October to 31^st December 2021.

Simply work out how much James was paid per month during this 8-week period, multiply it by 12 and divide by 52 to get the average weekly amount he is paid.

As James is salaried, his monthly pay before tax is £1,600.

Therefore, £1,600 x 12 months = £19,200 before tax.

£19,200 / 52 weeks = £369.23 average weekly pay (also before tax).

As such, James would be eligible for Statutory Sick Pay as he earns more than the £118 weekly threshold.

How to calculate Statutory Sick Pay

Employees are only eligible for Statutory Sick Pay on the fourth day of their illness. The first three days are known as ‘waiting days’.

Employers are obliged to start paying SSP from the fourth day of illness – also known as the fourth ‘qualifying day’. Qualifying days are the days that an employee is contracted to work according to their contract.

The only exception to this rule is if an employee has been off sick and receiving SSP within the last eight weeks, at which point SSP would be applicable on the first day of their illness.

Say Jane was off sick from Monday 13^th January and returns to work on Wednesday 22^nd and earns more than £118 per week.  Her contracted working days, the qualifying days, are Monday to Friday.

She was sick for a total of 7 qualifying days. Of course, SSP is not payable for the first 3 qualifying days. Therefore, Jane is eligible to the equivalent of 4 days of Statutory Sick Pay.

To calculate SSP, the weekly rate (£94.25) is divided by the number of qualifying days in a week and multiplied by the number of days for which an employee is entitled to.

In this case, Jane was off sick for 7 qualifying days (of which SSP will be paid for 4 of them0). Therefore, the sum to calculate Jane’s SSP entitlement looks like this:

The weekly rate (£99.35) is divided by the number  – £99.35 / 7 qualifying days = £14.19 of SSP per day.

£14.19 x 4 days = £56.77 in Statutory Sick Pay.

As an employer, you can choose to offer more than SSP to your employees as part of their benefits package. This is normally an amount based on their normal pay. But you can’t choose NOT to pay Statutory Sick Pay. It is a legal obligation as an employer.

Keeping track of employee illness and their physical and mental health can be challenging, especially when you have hundreds of employees. HR software is ideal for businesses to keep track of illness trends, calculate the Bradford Factor, report on annual sickness periods and save time by allowing your employees to record days of sickness, complete return-to-work forms online and much more.

Please note: while we here at Natural HR work with HR professionals every day, we are not lawyers. This post is a high-level overview of Statutory Sick Pay and how to calculate it. This post should not replace sound legal advice available from professional solicitors or employment lawyers.

The post How to calculate Statutory Sick Pay (SSP) entitlement appeared first on Natural HR.