The 5 Steps to Benchmarking the Payroll Process
Being in the payroll industry, you have an advantage when it comes to benchmarking. Every employer has a payroll process, giving you the opportunity to choose from a large variety of organizations to compare processes. The purpose of benchmarking is to find best practices that you can adapt to your environment.
One of the key steps to benchmarking is choosing the right organizations and partners to share practices. How do you know if your processes are cost efficient, streamlined, or produce the best quality if no comparisons are made? You may even find the results are that your numbers and processes are comparable with other organizations your size.
Here are five helpful steps to benchmarking:
- Establish the process to benchmark
- Select benchmarking metrics – quantitative or process
- Qualify organizations to survey
- Measure and compare performances
- Implement new processes
Step One: Establish the process to benchmark
To select the process to benchmark, look at what you feel needs improvement. For example, maybe your organization makes a large number of error payments each pay period due to inaccurate timekeeping and/or calculations, lack of approval process, or some other reason. To ensure accurate payments and eliminate the cost associated with erroneous payments, it may be time to review the time collection process. A streamlined time collection process could significantly reduce cost and labor associated with errors.
Step Two: Select benchmarking metrics
The next decision to make is the type of benchmarking to conduct – quantitative or process benchmarking. Quantitative benchmarking is comparing numbers only, while process benchmarking also looks at processes. Process benchmarking would be the preferred method for evaluating the time collection process. Process benchmarking also increases the number of partners willing to participate, since everyone can benefit from the findings by comparing costs and processes.
Step Three: Qualify organizations to survey
This could be one of the most important steps – finding organizations worth comparing. As stated earlier, being in the payroll industry offers more organizations from which to choose. However, there are some basic guidelines to follow during your search, such as similar employee count, number of exempt and non-exempt employees. If the majority of employees in your organization are hourly, then you want to compare costs and processes with organizations having a similar composition. Typically, the way employee time is tracked for exempt verses non-exempt, is very different and should be treated differently. Non-exempt employees are paid overtime, so the time collection must be precise to ensure people are paid correctly on time, every time.
When talking to organizations about sharing and comparing information, it is important to set expectations, so your contacts understand your goals and expectations. Once you have a good sampling of organizations, it is time to generate surveys and take some on-site tours.
A good survey is critical to gather the information you need. The questions should generate answers that reveal specific costs and numbers related to payroll, including costs for providing employee services, generating paper checks or using pay cards, total payroll costs, number of employees on payroll, frequency of payroll, and more. These numbers will show you how your numbers and costs compare, giving you an idea of where you can improve.
Time collection is critical to the payroll process. Accurately capturing and tracking employee time helps ensure compliance with labor laws and FMLA regulations, as well as significantly reducing the chance of generating incorrect checks. Organizations that use software to automate time collection are nearly error free, as opposed to organizations that manually collect time.
Let’s look at a real business case. Carhartt, the premier work wear manufacturer, has several plants with hourly employees. It is a manufacturing environment where employees had to manually track time for each product and quantity, with each product being on a separate timesheet. Not only was product and quantity tracked for production data, but this information was used to calculate pay as each job had a different pay rate and employees received incentive pay for reaching and exceeding specific quantities. Carhartt’s managers suspected the organization’s complex business rules, including those governed by union contracts, would be easier to manage and cost less through automation. After thorough research, a business case was developed to automate the time collection process. Within less than a year, Carhartt expects a 340-percent return on investment. This is a huge cost savings, which comes from eliminating paper, check errors, and other tasks associated to manual calculations and processes.
If your organization is in a manufacturing environment or has complex pay rules, Carhartt would be a good organization to conduct a site visit see its processes first-hand and have an opportunity to compare the processes of your organization. Not only did Carhartt significantly reduce costs, but the organization also increased productivity for the employees on the plant floor and the payroll department.
Step Four: Measure and compare performances
The search for industry best practices that lead to superior performance is the purpose of this exercise. After you have received your survey responses and conducted your tours, create a process flow of each organization’s time collection process and the costs associated with the process. Now, compare that with your organization to see where improvements can be made.
Step Five: Implement New Processes
Although possible, it is not likely that your process is perfect as is. Whether it is leveraging technology, implementing self-service, consolidating pay frequencies, or outsourcing some services, it is probably time to implement new processes at your organization. If you aren’t sure how to implement change, sign on to WorkForce Software’s on-demand webinar on, “ Change Management for the Payroll Professionals,” presented by Roger A. Smith, CPP & Payroll Consultant
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