Many organizations aren’t leveraging Payroll Data to its full potential. Enrique Sala, Senior Strategic HR Consultant at Meta4, a Cegid company, has extensive experience using data to drive strategic decisions in human resources at companies of all sizes. We sat down with him to get his insights into using payroll data in a meaningful way.
Visier: In your opinion, why does payroll data matter?
Enrique Sala: We tend to think of payroll data as purely economic numbers, such as total salaries, variable pay, when there are many others that are valuable to finance and HR. On the HR side, a healthy organization is one that is productive and happy. So, by making payroll data part of the business, HR can run a variety of analyses—on salary competitiveness, structural costs controls, voluntary and forced rotation, absenteeism, to name a few—to improve workforce efficiency in terms of productivity and performance.
This value multiplies if we combine our pure payroll data with our talent management data. We can actually answer other additional questions of value like: “Do we really pay the best employees better? How much does our talent cost us? Is the relationship between business results, talent performance, cost optimization well balanced?”
V: What are the most important payroll metrics that an HR leader or CHRO cares about? Why? How do they use them?
ES: Assuming the payroll process is accurate and smooth, the HR leader will watch the relationship between HR management and the cost of employees, while the C-level focus will be on the financial health of the organization. In this sense, metrics that help analyse organizational efficiency are critical for subsequent decision making: “Do I have the number of managers I need to have? How much do various organizational models cost me?”
Using payroll metrics and ratios together with market benchmarks can tell us even more on how we compare to our competitors in our industry. For example, using the sales per employee ratio, to answer: “Does my sales per employee ratio compare favourably against the benchmark for my sector?”
Or using the payroll to revenue ratio to measure: “How effective is my company at using labour costs to generate revenue?” Comparisons like this are the basis for making key decisions for improving organizational efficiency or for resizing purposes.
V: What are the most important payroll metrics that a payroll officer or manager cares about? Why?
ES: Generally, all payroll managers share a number of common concerns around overseeing the accuracy and efficiency of payroll calculations. Some typical questions they have are: “How much does the payroll calculation process cost me? Do I run the payroll process well enough, on time, and is it error free?” For this purpose, some metrics or KPIs of most value to payroll officers include the time to run payroll to find out the duration of the calculation cycle, accuracy rate with the number of errors/reprocesses, and payroll calculation costs. These are possibly the most important indicators because they provide a clear measure of the efficiency of the payroll process. The ability to deliver accurate payroll slips to employees is essential: erroneous and late slips will only lead to dissatisfied employees. It’s as simple as that.
Other qualitative payroll-related data of value entail processing various collective labour agreements, integrating different payroll items, automatically calculate and manage the impact of absences, overtime, illnesses, and more. The ability to provide such evidence-based payroll metrics are particularly useful for managers and the HR function for taking decisions on talent management strategies and actions—be it for recruitment, development, engagement, or termination, among others.
V: How do you think people analytics can make payroll data more powerful?
ES: Just as payroll data can provide business insights, the opposite can also apply; people analytics can lead to improved payroll costs and efficiency. By correlating and aligning the business reality and objectives using these metrics and indicators can help with improving the company’s financial results.
People analytics deliver insights on all kinds of socio-demographic issues of high interest to the company, such as diversity, salary competitiveness, workforce ageing, structural cost controls, voluntary and forced rotation, absenteeism, to name a few. By using indicators calculated with payroll data and breaking them down to different demographic groups within the organization we get richer information. We can learn about trending aspects like ageism, or dispel myths about whether men, women, seniors, millennials, or any other group show specific characteristics or patterns of behaviour such as more absences due to illness, higher absenteeism, or work-life balance issues, among others.
V: When the payroll data is married with HRIS data through analytics, what insights are most beneficial?
ES: When payroll and talent management data are pulled together, especially when payroll and HR processes are integrated, we can create far more meaningful real-time analytics. HR leaders will be in a position to find out what they don’t know. They will be able to identify the blind spots in an organization as this is what keeps them awake at night and become problem solvers. For instance, to identify the causes for unwanted loss of professionals leaving the organization, they’ll be able to answer questions like: “Am I paying the best enough? Do I discriminate in terms of salary for the most talented groups/professionals? What talent am I really losing? What talent am I really retaining? What skills do the best paid and the worst paid have? Are there skills or knowledge that are critical to the organization that are not being adequately remunerated? Am I truly applying internal equity, understood as equal pay for equal work?”
In short, combining salary metrics with talent metrics gives HR leaders a realistic and credible measure of whether, how, on what basis, and to what extent HR is efficient in their talent management. This way HR is able to control HR processes and costs better and also becomes a value generator that supports growth and profitability.
“When payroll and talent management data are pulled together, especially when payroll and HR processes are integrated, we can create far more meaningful real-time analytics.”
V: If a company isn’t using payroll data what are the risks/impact to their business?
ES: The bottom line is that with payroll data the company can quantitatively and accurately identify what is happening through various KPIs and what the workforce is costing them. Without this data the company will find it hard to gain reliable insights or even to anticipate or make predictions. Inevitably any actions taken on people will not be evidence-based but at the mercy of beliefs that are consequently risky for the business if these are wrong.
For example, an organization can learn much from its employee turnover rates and costs. A key question for management is: “How much does employee turnover cost the company directly and indirectly?”
If HR leaders are aware of the actual costs for termination, leaving, vacancy, recruitment, and onboarding, they will be able to make better decisions for managing their workforce more efficiently. Some jobs are easier to fill quickly and thus lead to lower turnover costs. However, other easy and quick to fill jobs may entail intensive training at the beginning, lengthening the onboarding process and raising the time to productivity metric, and ultimately make it more expensive to replace the employee. Other positions may take longer to fill either because they are senior management or key positions or require specific skills and experience.
V: Do you see any correlation between the importance of payroll data and the impact of COVID-19 on the workforce?
ES: By comparing the payroll data between normal and COVID-19 periods, it’s possible to gain clear insights on leave of absence, absenteeism, productivity, and profitability issues. The kind of questions to address are: “How much is the COVID-19 protocol costing the company? How much does it cost the company if we stop business activity, and how much does it cost to restart again?” The COVID-19 period is also marked by changes in management practices that need to adapt to the circumstances, with pressing questions on: “How many employees do I need to furlough? Am I resizing correctly?”
In 2020 HR leaders and CHROs were under great pressure to deliver on health issues, to tackle the organization of work, and bring meaning to work in an anxious environment. In 2021 and beyond, the economy is going to be high on the agenda, more than ever companies need to know where to invest and divest to overcome operational challenges in times of uncertainty.
By truly connecting HR management with operational management meaningfully with people analytics and business intelligence, HR leaders and CHROs will position strongly as a legitimate stakeholder on the C-level management committee.
Download the eBook, The Big Book of People Analytics: Payroll Data, to learn how to take your data and use it to improve business outcomes.