Archive for ‘KPI’

March 23, 2014

Payrollers! Are You Prepared for the New Australian Privacy Principles in force on March 12, 2014?


privacy

The new Australian Privacy Principles came into effect on March 12, 2014 and replace the National Privacy Principles and apply to all organisations (with some exceptions), as well as Australian government agencies.

The objective of the Principles is to ensure that organisations manage personal information in “an open and transparent way” and some of the key areas that relate to payroll functions include:

  • All organisations must take reasonable steps to implement practices, procedures and systems to ensure the organisation complies with the Australian Privacy Principles and to provide a system of dealing with enquiries and/or complaints
  • All organisations must have a clearly expressed and up to date policy about the management of personal information, including:
  1. The kinds of information the organisation collects and holds
  2. How the organisation collects and holds the personal information
  3. The purpose of the collection, holding, use and disclosure of the information
  4. How an individual may access personal information and correct any information
  5. How an individual may complain about a breach of the Principles
  6. Whether the organisation is likely to disclose the personal information to an overseas entity
  7. If the organisation is likely to disclose personal information to an overseas entity, the countries in which that may occur
  8. Organisations must not collect personal information unless the information is reasonably necessary for one or more of the organisation’s functions or activities
  • Organisations must not collect “sensitive” information about an individual unless an individual consents to the collection and the information is reasonably necessary for one or more of the organisations functions or activities
  • If “sensitive” personal information is collected as a requirement by law or a “permitted general situation exists in relation to the collection of the information”
  • Where an organisation holds personal information that was collected for a particular purpose (the primary purpose), the organisation must not use or disclose the information for another purpose (a secondary purpose) unless the individual has consented, or the individual would reasonably expect the organisation to use or disclose the personal information for the secondary purpose, or if the use or disclosure of the personal information is required  or authorised under an Australian law
  • Before an organisation discloses personal information about an individual to an overseas recipient, the organisation must take all reasonable steps to ensure that the overseas recipient does not breach the Australian Privacy Principles
  • An organisation must take reasonable steps to ensure the integrity of all personal information to ensure the information is accurate, up to date and complete
  • An organisation must take reasonable steps to ensure the personal information is protected from misuse, interference and loss and from unauthorized access, modification or disclosure

If an organisation refuses to correct the personal information as requested by the individual, the entity must give the individual a written notice that sets out the reasons for the refusal, the mechanisms available to the individual to complain about the refusal and any other matter prescribed by the regulations

All organisations must take reasonable steps to implement practices, procedures and systems to ensure the organisation complies with the Australian Privacy Principles and to provide a system of dealing with enquiries and/or complaints

All organisations must have a clearly expressed and up to date policy about the management of personal information, including:

If you are a Payroll Manager or hold a position of responsibility for the management, security, disclosure and use of personal information you can be fined under the Act for non-compliance, apparently up to $340,000.  I’ve not studied the Act yet to understand whether this is per offence, which could be a devastating blow for an individual who is responsible for the disclosure of a substantial numbers of employee’s information, where there is a security breach or a non-compliant business practice.

If your organisation hasn’t made a big deal out of the new Australian Privacy Principles as far as payroll is concerned, especially if you outsource any part of your payroll function, you have a couple of days to establish how your payroll function will ensure compliance.

According to this Smart Company article on 5th March 2014 “The laws will apply to businesses that turn over more than $3 million a year and collect personal data.

However, there are some small businesses which turn over less than $3 million that will still need to abide by the new legislation. For example, the laws apply if the business is a health services provider, related to a larger business, trades in personal information, or is a contractor which provides services under a Commonwealth contract.”

For more information on the changes to the Privacy Act, visit the Office of the Australian Information Commissioner (OAIC) website.

If you are unsure whether the Privacy Act applies to your business, check out the Privacy Checklist for Small Business from the OAIC.

More articles on the Australian Privacy Principles from Australian Law Firms:

Australia: Are you compliant with new privacy laws coming into effect 12 March 2014? By Dan Brush of CBP Lawyers on mondaq.com

Australia: Major changes to Australia’s Privacy Act: Why they matter for foreign IT suppliers doing business in Australia by David Smith of Corrs Chambers Wesgarth on mondaq.com

Australia: Timely Guidance from the Privacy Commissioner – APP Guildelines Released by Sophie Bradshaw of Corrs Chambers Westgarth on mondaq.com

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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February 2, 2014

Reading Contextually Between the Payroll KPI’s


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The Minimum Essentials Payroll KPI’s outlined the KPI’s all payroll services should have implemented and touched on benchmarking.  Benchmarking can be dangerous territory for the unitiated, because it is so subjective.

Simply comparing your end result numbers against another organisation, industry or a global best practice and deciding that your payroll service must work to achieve best practice may result in degradation of your service levels and compliance.  You must apply “context” to the benchmarking data, in order to truly achieve any level of benchmark against others.

To apply the “context”, it is essential to understand that behind every number is a complex array of factors including:

Scope of the Study

First and foremost, the scope of the benchmark study and the compilation methods of the data used to calculate the metrics, especially how the cost of payroll production has been calculated.  The cost of payroll production is a base line measurement for a major part of the benchmarking process, so it is important to ensure that everyone is compiling their costs using comparable methods and with the same definition of end to end payroll.  Company “A” may interpret end to end payroll as the process from receipt of timesheets into the payroll service to the deposit of funds into employee bank accounts, whereas Company “B” will rightly incorporate the compilation of employee timesheets and production of post payroll reporting, and include the cost of all employees involved in the process.

Automation & Integration of Systems

Automations and integrations achieved by the HRIS and related systems significantly reduce the cost of payroll production as automation plays an integral role in the efficiency of the payroll service.  If your payroll is fully integrated with time and attendance and employee self-service and the general ledger, you are half way there.  Every process that is performed manually, multiplied by the number of times the process is performed, adds up to a significant potential cost saving over the course of a year.

Volume of Management & Statutory Reporting

Management reporting and the volume of it, varies from business to business and if you have the luxury of HRIS and related integrated systems that automatically produce the reports and email them to the recipient list you are miles ahead of the payroll service that is manually compiling data for management reporting

Statutory reporting is often an onerous task and the more data you can pull down from your systems, either as data into excel spreadsheets or as completed reports from your systems to automate the reporting processes will result not only in efficiency, but should also result in greater compliance by virtue of the reduced manual intervention.  The ultimate HRIS system for me would include one with the capability of calculating the payroll tax, fringe benefits tax and other required reports with all the bells and whistles that submit the electronic returns.

Method of Pay Slip Distribution

The automation of pay slip distribution can be a giant cost and efficiency gain to organisations that is under rated and under utilised by so many organisations.  If your organisation is taking the time to print, separate, seal, collate and physically send pay slips across the organisation, it’s time to start asking your employees if they’d like to receive their pay slips via email and/or investigating the return on investment of employee self-service.

When benchmarking your payroll service against another, factor in the varying methods of pay slip distribution, especially where there are sizeable organisations with a national presence.

Business Process Automation

Automations achieved by business processes need to be taken into account when analysing one organisation’s KPI’s against others:

  • If your payroll service operates with highly manual processes and a considerable quantity of hard copy forms, you will never achieve best practice in efficiency and as a result of that, cost.  Best practice efficiency results from the automation of processes such as employee self-service to enter leave applications, supply of information to reduce employee queries and upload of information by HR/P&C or employees to minimise transactional processing by the payroll service.
  • Physical data entry of timesheets by the payroll service is another detriment to the achievement of efficiencies in comparison to payroll services that utilise excel uploads, time and attendance system integrations and other automated processes.
  • Physical data verification of timesheets and employee information is time consuming and should be minimised as much as possible.  This is said, on the absolute proviso that comprehensive audit and validation checkpoints and reports are produced and verified to ensure that all potential errors will be identified in the process.  If you cannot achieve complete automation, take what you can and implement baby steps within the various components of the payroll process.
  • The number of autopaid employees, which is usually reserved for salaried employees and those permanent employees who don’t vary their hours or work overtime greatly.  This is not a benchmark that can usually be addressed by the payroll service, as it is dictated by legislation, award coverage and organisational policy.

Complexity of the Business and Its Payroll

Greater complexity results in a higher volume of business processes and the aim should be minimise and eliminate the complexities, where possible.  Some complexities such as number of business entities or industrial agreements cannot be changed and the objective is to achieve economies of scale in the payroll processes.

When comparing organisations for benchmarking purposes though, it is useful to understand the level of complexity involved in order to truly benchmark one payroll service against another, for example:

  • Company “A” may be a single registered entity, whereas Company  “B” may be made up of fifty separately registered entities.  Company “A” runs 52 weekly payrolls per year, whereas Company “B” is required to run 2600 weekly payrolls per year, which will result in a huge disparity between the two companies cost of payroll production and their efficiencies.

The Level & Volume of Services

One payroll service that processes only uploaded timesheets, does not have payroll accounting or statutory reporting performed within the payroll service and does not have ancillary employees benefits management functions will appear to outperform and be more efficient than an organisation whose payroll service includes manual timesheet entry, a great volume of management and statutory reporting and complex benefits management.

Additionally, the service level demands on the payroll service are hard to measure but definitely come into play in one service’s ability to outperform another.  The difference between an organisation that has a dedicated support line, or a policy where employees can call their payroll representative directly at any time of day and an organisation that has an archaic policy of allowing employees to contact payroll only at certain times of the day will lend weight to the payroll service’s ability to achieve best practice efficiency.

The volume of enquiries is a standard measurement for payroll best practice and will be determined by a multitude of factors, including the level and volume of services provided plus the error rates being achieved by each service and a multitude of other organisational or industrial issues.

The Salary Costs of the Payroll Team

A big factor in the cost of payroll production is the cost of your payroll team, and again requires a multitude of considerations before simply benchmarking one company against another, such as:

  • Does your organisation pay award rates or market rates?  How do the salaries of your payroll team per FTE compare to those you are benchmarking against?
  • Where is your organisation located? A capital city centre will always demand higher salaries than a regional area.
  • What are the positions included in your payroll team?  Do you have only transactional payroll processing staff, or do you have HRIS Systems staff, analysts, payroll accountants, employee benefits administrators, multiple leaders and managers and such?  The inclusion of payroll team members in addition to the purely transactional staff is always going to show a higher payroll production cost per FTE and as such needs to be taken into consideration when comparing the data.

Additional Variables Impacting KPI Analysis

Other variables that need to be analysed contextually include:

  • The number of employees processed and/or supported per Payroll FTE should be interpreted taking into account all of the factors discussed above.  One payroll team member can quite easily produce 1500 pays per week, while another would struggle to produce 250.  This is based not only on the competence of the team member, but also on the level of automation, complexity and what portion of the end to end payroll function each of the team members are performing
  • Data Quality is of prime importance to the achievement of compliance and efficiency and where one organisation is falling behind another due to data quality, a valid argument with cost based analysis can be achieved to highlight the importance of Input = Output.
  • The volume of Out of Cycle Payments and Special Pays as a metric in a report can be read as a poor performing payroll service who clearly needs to implement some payment policies and undertake some cause analysis on these “errors”.  On the other hand, it could also be read that organisational policy or awards dictate a service standard that the payroll service has to adhere to, or that the organisation needs to support the payroll service in having all staff understand the importance of data quality and timeliness.
  • The cost of Out of Cycle Payments and Special Pays will be a key driver for management to address, where they can, the organisational policy to improve the volume and cost of out of cycle payments.  When you consider that an out of cycle payment takes, at the very least, half an hour from calculation to completed payment, this raises the cost of payroll production significantly if you have high volumes.
  • Retrospective payments are a contributor to cost of payroll production whether you have a system that automates the process or not.  Aside from the calculation of retrospective payments, they usually have to be checked as a separate process within the payroll process and cause fluctuations/variations in the payroll (employee and company totals) due to back payments that again have to be manually verified as a separate process step.
  • The employment turnover of payroll staff will add to the costs and efficiency of the payroll service, but is something that will not be understood in the realm of benchmarking.  An individual organisations turnover can only be understood by understanding the data behind the data.

There is No Like for Like in Payroll

Any comparison you make of your KPI’s to others is a subjective comparison and the contributing factors must be taken into consideration, as best you can, to make a considered judgement of your achievements against best practice.

In payroll benchmarking, there is really is no like for like due to the variances in operating systems; policies, processes and practices; complexities; and of the interpretation of “end to end” payroll.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

January 20, 2014

The Minimum Essential Payroll KPI’s


As a Payroll Manager, you are responsible for managing what is the greatest cost of most organisations and with that comes the continued attention of Finance, C-Level Management and the Board.  You are being monitored and usually measured on cost and efficiency and you are always at risk of being outsourced to a more viable option.

As a manager of a service offering in your organisation, you need to be a “business” manager who is focused on achieving organisational goals and outcomes, on providing service to your “customers” that could not possibly be matched by competitors and on the cost of payroll production.

If you are not already measuring, monitoring and acting upon Key Performance Indicators (KPI’s) in your payroll service, you need to start NOW.

KPI’s are quantifiable indicators that reflect the organisational goals and are supposed to be drivers of change and measures of progress.

Payroll has long been viewed as a purely transactional processing cost centre, whose only organisational goals are to minimise the cost of processing and keep payroll noise to an absolute minimum.  While these are primary goals for cost reasons, many other complexities come into play as to why payroll costs what it does.

Only by measuring and taking calculated steps to improve the KPI’s, will you be able to truly reduce payroll costs, as many of the reasons for the cost of payroll are completely outside of the Payroll Managers control such as data integrity, industrial complexity and statutory requirements for example.

Personally, I have a few issues with the apparent simplicity of payroll KPI’s and the comparison of organisations against each other, or against best practices.  The measurement of cost, transaction volumes and time to complete tasks alone does not truly measure the performance of a payroll team as there are an abundance of variables coming into play for every number recorded.

No two payroll operations are like for like.  There are different operating systems, differing policies and company practices, differing complexities and differing definitions of end to end payroll.

I also believe that the global standard for compilation of payroll KPI data misses three very important categories: Service Excellence, Best Practice Business Processes and Compliance.

A payroll service’s primary function is to produce on-time, compliant employee payments… but getting the money into employee’s hands is far from the end of the payroll process.  Management and statutory reporting can be a huge portion of a payroll team’s workload, as can be the day to day enquiries of the workforce and other organisations relating to employee payments and financial matters.

Additionally, every payroll service on this earth, no matter their size, should aim to have best practice documented processes, checklists, segregations of duty and audit steps throughout the process, so this should be included in the KPI’s and be a major objective of the payroll team and the organisation.

These are the Minimum KPI’s Payroll Should Be Measuring as per global industry practice:

(HR/P&C KPI’s are excluded as the focus is solely on payroll production)

THE COST OF PAYROLL – intends to measure the cost to business of the end to end payroll process, which usually encompasses the sum total of wage and operating costs of the payroll team and the cost of implementing and maintaining HRIS and related systems.  For a true cost of end to end payroll, all people in the organisation that contribute to any component of the end to end payroll process should be identified and accounted for such as:

  • IT costs involved in implementation and maintenance of HRIS and related systems
  • Payroll Accounting costs
  • The wages cost of staff compiling timesheets for payroll input
  • Supervisors and management wages cost for time spent on payroll processing and enquiries
  • HR/P&C wages cost for time spent on the transactional components of payroll processing

The combined results of these metrics will assist you to determine the cost drivers of payroll production:

  • Cost of Payroll (Total Wage Cost All Employees) as a Percentage of Revenue
  • Number of Payroll Processes Per Annum
  • Cost of Payroll Production Per Employee Serviced  (Total Operating Cost of Payroll Service per employee serviced by the payroll)
  • Cost of Payroll Production per Payroll FTE

PRODUCTIVITY – intends to measure how productive the payroll team as a whole and individually are, by measuring the ratio of payroll people to the number of employees being serviced.  Additional metrics allow identification of issues affecting productivity.  Standard metrics include:

  • Number of Pays Processed Per Payroll Processor FTE
  • Number of Out of Cycle Payments Processed
  • Number of Retrospective Payments
  • Number of payments requiring manual intervention or follow up
  • Input that contains unclean data

EFFECTIVENESS – intends to measure whether the payroll team are achieving the required outcomes (on-time, compliant payroll production) and identify factors that may be inhibiting their effectiveness.  There are a host of metrics utilised to measure effectiveness and include:

  • Error Rate including Overpayments
  • Payroll Staff Turnover
  • Volume of enquiries and the speed at which they are responded to
  • Automations (including metrics on production time on manual forms/transactions, employee self-service, payroll processing automations, reporting, payslip production)
  • Data Integrity
  • HRIS and related Systems Integration

Additional KPI’s That We As an Industry Should Be Advocating:

SERVICE – regular measurement of the perception of service by those we serve, including:

  • A regular rating by employees to establish the current perceived level of service and identify improvement areas (perceived or real)
  • A regular rating by your internal customers and by supervisors and management on their perception of the payroll service
  • Regular ratings against the achievement of Service Level Agreements
  • Compilation of data on queries such as long term unresolved employee queries, union action as a result of payroll actions and other day to day categories of enquiry in order to identify service demands and improvement areas

COMPLIANCE – as a core function of the payroll service, measurement of the continued achievement of organisational and statutory compliance including:

  • Outcomes of audit reports
  • Compliance with company policies and procedures
  • Achievement of management reporting deadlines
  • Correct, on time and compliant statutory reporting and payments
  • Achievement against monthly internal compliance reviews
  • Breaches of employment legislation , award requirements, etc
  • Breaches of service level agreements

BEST PRACTICE BUSINESS PROCESSES – there is enough global evidence, supporting legislation and standards that demand that all payrolls should be produced utilising best practice business processes to ensure corporate governance, financial transaction security and so on.  The measurement of the payroll service’s achievement towards best practice business processes should identify:

  • All processes and sub processes in the production of payroll are documented and reviewed regularly for compliance and best practice
  • Documented checklists are utilised for payroll processes and signed off by relevant overseers at each vital step of the payroll process
  • Payroll balancing is exhaustive and each authoriser throughout the process understands the full extent of what they are authorising
  • Segregation of duties is well documented, authorisations are achieved and a process for monitoring each step of the payroll process exists
  • Error identification and fraud prevention process checkpoints are  included throughout the processes and checklists
  • Business policies are documented for information security, confidentiality, privacy, authorisations, etc and the requirements of each policy are implemented within the processes

If your payroll service is measuring and monitoring the metrics and KPI’s listed, I applaud your efforts!  If you are part way there, then I urge you to build in these additional KPI’s and identify further improvement areas for your service.  If you are not measuring, open up a new excel spreadsheet NOW! and start pumping in the numbers you need to measure your base line data.

The data on its own though is insufficient, as you need to identify targets for each of your KPI’s and monitor these as you implement your improvements, to ensure your efforts are actually achieving the intended outcomes.

Many payroll services benchmark themselves against others, or against industry, country or global best practice KPI’s.  Before deciding how you will utilise benchmarking, it is important to understand the dynamics behind the numbers.  Essential to your understanding though, is that you must drill down into the numbers to understand the measurement method of the benchmarks you apply; the complexities of the organisations you measure yourself against; the HRIS systems and processes in place; and a host of other reasons that another payroll service may be producing twice as many employee payments as your team, with half the staff.

Remembering that KPI’s are quantifiable indicators that reflect the organisational goals and are supposed to be drivers of change and measures of progress, it is imperative that you understand what the goals actually are for the payroll service and include measurements that will provide actionable data that identifies what issues exist and what improvements need to be implemented.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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