Dive Brief:
- Employee pay can represent between 40% and 60% of the operating expenses at a large employer, but payroll is often under-resourced and poorly governed, losing millions of dollars to waste and potential fraud every year, according to research from workforce management firm UKG and accounting firm KPMG.
- Organizations lose between 2% and 4% of total labor spend each year to “payroll leakage,” meaning “consistent, unintended financial losses” due to process problems, system limitations and even fraud, according to the March 31 report.
- In addition, 38% of companies reported annual payroll losses of between $1 million and $5 million. The report found that a loss of as little as 1% could amount to as much $15 million at a large company.
Dive Insight:
The report — which surveyed more than 300 senior global leaders at companies with more than 10,000 employees and a minimum of $5 billion in revenue — found that payroll teams often lack the executive ownership and visibility that functional groups such as finance or talent teams generally have.
Thirty-three percent of those surveyed reported having 50 or more full-time employees dedicated to payroll; 23% said their payroll team had between 15 and 24 employees.
“Employee pay is one of the most powerful levers multi-national organizations have to strengthen their financial health, elevate the employee experience, and operate with confidence on a global scale,” Richard Limpkin, general manager of global payroll solutions at UKG, said in a statement. “Payroll teams sit on a wealth of actionable insight that leaders can use to guide smarter, faster decision making.”
He added that global payroll was “a rich source of workforce intelligence for organizations.” Companies are tracking available employee pay data but not always using effective metrics, the report found. For example, 89% of respondents said they used automated payroll comparison tools to compare payroll cycles and 69% tracked payroll accuracy. Despite this, only 35% said they measured first-time-right payroll, and less than 50% tracked cost per payslip or processing cost.
The report said these two metrics were the most indicative of leakage and ROI, and that without the “right data visibility, organizations cannot make the business decisions necessary to propel forward.”
The report found that less than half of C-suite and senior executive leaders (47%) said they used artificial intelligence to handle payroll, citing concerns about data accuracy, integration gaps and lack of standardization. Nonetheless, 69% of leaders said AI will improve accuracy and compliance, while 68% said it would enhance insights.
Workers in other surveys have expressed hesitance about employers using AI for payroll; 45% of workers surveyed by PayrollOrg said they would be against the use of AI for addressing payroll inquiries.