The payroll department is a great place to install automation -- there are Web-based timekeeping systems, computerized time clocks, outsourced payroll processing, employee self-service, direct deposit, and payroll cards. However, don't forget that the finest automation in the world will not keep the payroll staff from working overtime if the underlying processes are laced with errors. Error correction can take up an enormous proportion of the payroll staff's time in such areas as cutting manual checks, stopping paychecks, recalculating taxes, and issuing W-2c forms.
There are many steps involved in locating and correcting errors, but the first step is realizing that there is a problem -- which requires a payroll performance measurement system. No single measure can adequately reveal all possible problem areas. Instead, consider a selection of measurements from the following list:
- W-2c forms issued per 1,000 payees. If the underlying error was bad enough to restate an employee's reported earnings, you need to know about it through this measurement. The problem is that it really only tracks errors occurring near the end of the calendar year, since earlier errors would presumably have already been fixed in time for the regular W-2 form.
- Number of manual checks per 1,000 payees. Though a commonly used measurement, this one also has some problems. A high proportion of manual checks to payees could simply mean that the company has a loose policy in regard to the issuance of pay advances, rather than any transactional problems within the payroll department.
- Number of W-2 forms retrieved per 1,000 payees. This measurement tracks how many times someone in the payroll department had to access the corporate copy of someone's W-2 form. It is of most use in building a case for setting up a Web-based site where employees can access their own W-2 forms.
- Number of total transaction errors per 1,000 payees. Though I've listed it last, this is really the classic payroll measurement, since it give a good feel for the total proportion of errors to total transactions. However, managers typically need to break the underlying errors down into categories of error types in order to take constructive action.