The payroll department handles high transaction volumes for activities that are repeated over and over again. Given the recurring nature of the underlying work, this is an excellent area in which to install metrics that give management an idea of the areas in which performance can be improved. If used properly, metrics can show where you can drill down into the data to obtain more information about underlying problems, potentially resulting in greater processing efficiencies and less time wasted on error correction.
A selection (or all) of the following metrics can be of use in spotlighting changes that require further investigation:
Number of W-2 retrievals. This is the number of times in a measurement period that the payroll staff had to provide employees with a copy for their Form W-2. It is useful as justification for a project to provide employees with direct online access to this information.
Proportion of manual checks. When there is a large proportion of manual checks issued, this is a strong indicator that there are errors in the normal payroll process that require correction with manual payments. This metric can also indicate the presence of a large number of employee advances.
Proportion of errors to total payments. This is a general aggregation of all the payroll corrections found in a period to the total number of payments made to employees. This is the highest-level metric, and so requires additional investigation to find the reasons for underlying issues.
Proportion of W-2c forms issued. A Form W-2c is used to correct the reported amount of compensation paid to an employee, and is a strong indicator of underlying payroll data accumulation or calculation problems. However, it really only indicates problems arising near the end of the calendar year, when issues have not yet been corrected in a later payroll processing period.
Salary overpayments. This refers to those instances in which excessively high salaries were paid in comparison to the authorized rate. An ancillary measure is the amount of these overpayments subsequently collected from employees by the company.
The number of payroll metrics used, as well as their level of detailed information tracking, may increase over time, as the payroll manager eliminates the easier issues and begins to delve deeper into payroll transactions to root out those remaining payroll problems that are more difficult to locate and correct. For example, it may be necessary to focus on transaction error rates within specific locations, departments, or transaction types in order to determine the cause of an error.