Payroll at the Core of HR Analytics

The cost of labor represents at least 50-60% of the total cost base for most companies.

The cost of labor represents at least 50-60% of the total cost base for most companies. In some particularly people-driven businesses such as consulting firms, law firms, or other professional service organisations that percentage is even higher. Today, many companies have recognised the financial and strategic importance of their employees and are quick to state that their employees are their most valuable asset. Yet, in many organisations, the ability to really understand their employee base through quantitative analysis, i.e. HR analytics, remains under-developed.

Employee Data: Important but Still Poorly Understood

Most companies still manage this very important asset, i.e. their employee base, in rather simplistic ways, relying on their decisions largely on instinct and gut feel instead of solid, accurate, timely, well-organised data. In a recent study by Deloitte, 80% of companies conceded that they do not have any well-developed HR analytics tools to manage their employees based on facts and data. Many companies find it difficult to have access even to basic information such as how many total employees are on the payroll, how many new employees have been added, or how many employees have left the company in any given period. Much less finding the answers to more advanced questions like How are we paying top performers vs. low performers? How are the compensation levels between male and female employees? How do increases in total compensation (incl. benefits) compare across different parts of the organisation?

In most companies – small and large – HR Analytics is still in its infancy. The reasons are multifold:

  • Cultural Affinity: a historic lack of data-driven culture, more focus on people issues and “soft factors” in the HR function;
  • Data Availability: data residing in many different, non-integrated systems across the organisation;
  • Data Reliability: data not being captured and maintained in an accurate and reliable manner in the systems where it resides.

Leveraging Payroll as the Foundation for Better HR Analytics

This is where payroll comes in. Payroll traditionally is the most data-driven function relating to employee information, in fact in many companies Payroll is part of the Finance function which is inherently quantitative and data-driven. More importantly, many organisations consider Payroll to hold the ultimate version of the truth and hence to be the most reliable source of data. So companies should consider starting their quest for better HR Analytics by building on payroll data.

However, the challenge for many multinational organisations lies in the fragmented nature of payroll: Payroll data is readily available at local level, but hard to grasp in a multinational environment. Payroll data generally sits siloed in a multitude of local payroll systems. To obtain a cohesive global picture requires cumbersome manual aggregation and queries across many different local systems. The implication is frustrating: Given the time-consuming manual labor involved in aggregating the payroll data, many companies only analyse a limited subset of high-level payroll data, deeper insights are getting lost. And by the time the data is pulled together, it’s already outdated. And of course, the manual aggregation and analysis always introduce the potential of human error.

The Need for Systematic Global Payroll Reporting

For companies looking to build on Payroll as the foundation for richer HR analytics, investing in a solid, system-enabled payroll reporting capability is mandatory. Up to now, the choices available to companies trying to consolidate their global payroll data into one cohesive and intelligent data warehouse have not been very appealing:

  • Choice A: Companies can invest in your own custom reporting solution to consolidate data across their local payroll systems. However, such integration is prohibitively expensive for most companies, and only something the largest corporations can typically afford.
  • Choice B: Companies can contract with one of the traditional global payroll providers (e.g. ADP, Ceridian, CloudPay, etc.) in the hope of obtaining harmonised global payroll reports as part of the global payroll solutions that these providers offer. However, it means they first need to rip and replace their existing local payroll solution (which means huge change costs, operational disruption, and reimplementation risks). And it also tends to be very expensive in terms of ongoing support fees (2-3 times the rates of the typical local solution)

But don’t despair, there is a silver lining on the horizon. Using modern design concepts and technologies such as data extraction tools, APIs, and mapping & translation engines, companies are now able to consolidate all their local payroll data in one central global reporting database. As a result, companies can get insights into their employee base (i.e. who is on the payroll, salary levels, and social charges associated with their employment) that they never had before, at the push of a button.  The best news is that companies can now achieve the global payroll data consolidation in a matter of days, not weeks or months it would generally take with traditional global payroll solution.

Author – Marc-Oliver Fiedler – Payzaar

Black Mountain Group

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