It is difficult to anticipate the benefits of taking your payroll online. This was a challenge faced by one of our recent customers where the HR department found it challenging to estimate the ROI derived from implementing an online Payroll software.
In this post, I have analyzed time and money spent in manual Vs online payroll processing. Have a look at some of the benefits that were presented to the senior management of the organization to help them get best return on investment (ROI) of a payroll management.
The exercise which started as a small initiative actually helped me dive deeper into how a CFO or CEO perceive their human resources department and what are their expectations from an HR platform.
What I will share here is a small part of the study in how organizations are managing their human capital assets and the challenges being faced versus what are the best practices in using paperless payroll. In this, I will share what are the different metrics and how can organizations save costs in this critical area.
Consider the Elements of ROI before taking your Payroll Online
To determine the ROI in paperless payroll, we had to first understand how the payroll process works in a manual environment. Our interactions revealed that there are three distinct steps in the successful processing of a payroll which are:
1. Data gathering
3. Disbursement and Reporting
For each of these steps above, there are multiple sub-processes which may take substantial effort and time.
To understand the complexities involved in a payroll process and gaining deeper insights into challenges being faced, we further analyzed many other companies across multiple industry verticals, different employee types (blue collared, white collared, management) and found a median effort for each of the sub-processes. Some of these sub-processes on which we could identify the metrics are:
a. Number of FTE (Full Time Employees) required
2. Data Gathering in a Payroll Process
a. Number of time records processed in one year
b. Number of Employee Validation Errors seen during the year for time records which will require corrections and authorizations at multiple employee levels.
c. Time for adding a new employee to the system with salary structures and all other required data
d. Time for removing a terminated employee from the payroll system.
3. Processing of Payroll
a. Number of payroll transactions processed
b. Cycle time for audit of payroll prior to disbursement
c. Number of manual checks disbursed.
4. Disbursement and Reporting in a Payroll Process
a. Number of payroll related queries
b. No of payment errors
c. Cycle time to process a payroll error
d. Time for creation of reports which are submitted on a monthly, quarterly, half-yearly and annually per employee
Once these metrics were identified, we studied the impact of these metrics in manual processing vs processing using an online payroll software such as Empxtrack.
The example below refers to the results for a mid-sized organization with approximately 1,000 employees across multiple locations. The results are the total time spent in one year for processing monthly payrolls.
|Process||Manual Payroll||Best Practices||Number of FTE for managing the payroll process||3.48 employees||0.57 employees||Number of time records processed manually||43,500||5,200||Number of Employee Validation Errors seen during the year for time records||350||4||Time for removing a terminated employee from the payroll system.||3.5 days||1.5 hours||Number of payroll transactions processed||18,500||16,500||Number of payroll related queries||982||177||Number of manual checks disbursed.||50 or more||12 or lesser||No of payment errors||56||7||Cycle time to process a payroll error||7.5 hours||0.3 hour||Cycle time for audit of payroll prior to disbursement||230 hours||60 hours||Time for creation of reports which are submitted on a monthly, quarterly, half-yearly and annually per employee||1050 hours||75 hours||Cost for Processing Payroll||USD 190,750||USD 27,550|
|Process||Manual Payroll||Best Practices|
|Number of FTE for managing the payroll process||3.48 employees||0.57 employees|
|Number of time records processed manually||43,500||5,200|
|Number of Employee Validation Errors seen during the year for time records||350||4|
|Time for removing a terminated employee from the payroll system.||3.5 days||1.5 hours|
|Number of payroll transactions processed||18,500||16,500|
|Number of payroll related queries||982||177|
|Number of manual checks disbursed.||50 or more||12 or lesser|
|No of payment errors||56||7|
|Cycle time to process a payroll error||7.5 hours||0.3 hour|
|Cycle time for audit of payroll prior to disbursement||230 hours||60 hours|
|Time for creation of reports which are submitted on a monthly, quarterly, half-yearly and annually per employee||1050 hours||75 hours|
|Cost for Processing Payroll||USD 190,750||USD 27,550|
The analysis of the above data gave an unimaginable saving of costs to the tune of $150,000 per year which is much higher than the cost of acquisition of the payroll services offered by a software such as Empxtrack..
Benefits of taking your Payroll Online
The following image graphically illustrates the impact of taking your payroll online by considering some of the parameters in the chart above.
We further analyzed the intangible benefits (some of which had cost implications as well) of using the payroll services of our online payroll software. Some of these are:
1. No need to print payslips. Employees can view their payslips online and these are emailed automatically as well for their records.
2. Minimum payroll related queries post processing. Allows the accounts/HR to complete many more important tasks.
3. Minimum impact when salaries change. Update at a single place is reflected automatically. This avoids reprocessing of payroll.
4. Low impact when new employees are added. For example – for a multi-locational organization with distributed hiring, it becomes difficult to process payroll for new employees.
5. Minimum impact when employees quit.
6. Integration with time reporting systems saves costly mistakes and reprocessing time.
7. Automatic updates to the income tax rules to meet compliance requirement.
8. Archiving of Payroll data for statistical analysis in respect of different employee types.
To analyze the ROI for your company, please contact us. We will be happy to analyze your payroll process and guide you to take your payroll online, at no obligations, and suggest areas where improvements can be carried out.
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