Top 6 payroll metrics every HR professional should track

Most businesses worldwide take over four days to process payroll each period.* That adds up to a lot of time, effort, and money throughout the year, making it essential for organizations to build processes that are smooth, accurate, and efficient.

For HR professionals, payroll is more than a logistical task; it’s a high-stakes process with little room for error. Mistakes can lead to dissatisfied employees and compliance risks, highlighting the importance of getting it right every time.

What’s at the root of many payroll challenges? Inefficient processes. One of the most effective ways to optimize these processes is by tracking key payroll metrics.

Payroll KPIs (key performance indicators) provide valuable insights into the efficiency and accuracy of your payroll operations. In this article, we’ll explore six essential payroll metrics that modern businesses should track and explain how they can help you build a more effective payroll strategy.

*Deloitte, 2020

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What are payroll metrics?

Payroll metrics, or “payroll KPIs,” measure and quantify key aspects of the payroll process. They provide insights into payroll performance, helping to identify inefficiencies and risks.

The specific payroll metrics your organization tracks will depend on your goals — whether improving accuracy, cutting costs, or boosting efficiency. Common metrics include:

• Cost of payroll
• Payroll processing time
• Compliance score
• Payroll accuracy rate
• Error resolution time
• Employee turnover rate

By consistently monitoring payroll KPIs, you can uncover process weaknesses, make data-driven improvements, and refine your payroll strategy. A proactive approach to payroll management fosters a positive employee experience (EX), ensures compliance, and supports smoother, more cost-effective operations.
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Why does measuring payroll metrics matter?

If your organization isn’t tracking payroll performance, you’re missing an opportunity to understand — and prevent — payroll mistakes.

Nearly half (47.2%) of companies manage payroll in-house,  making it critical to track payroll metrics. However, even businesses that outsource payroll need to monitor whether providers meet service-level agreements (SLAs) — something 59% of smaller companies fail to do, but should.
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4 benefits of tracking payroll metrics

• Enhanced employee satisfaction through timely and accurate pay
• Cost savings from streamlined operations and fewer errors 
• Greater data accuracy with reduced mistakes
• Stronger compliance by spotting risks early and addressing them

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6 top payroll metrics to track to ensure an effective process

Recognizing the value of monitoring payroll metrics is one thing — implementing them is another. So, where should you begin?

Start by identifying your payroll goals and prioritizing the metrics that’ll deliver the most value to your team. Here are six payroll KPIs we recommend tracking:

1. Cost of payroll

Reducing payroll expenses while maintaining efficiency starts with understanding your current costs.

The cost of payroll is a metric that assesses how much money a business spends on paying employees. On top of basic compensation and benefits like salaries, paid time off (PTO), and over time, it includes the following:

• The time it takes for your team to process payroll 
• Cost of rectifying payroll mistakes 
• Expenses associated with payroll software or paying a third-party provider

By monitoring payroll costs over time, you can identify savings opportunities, such as optimizing automation and reducing unnecessary overtime. 
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2. Payroll processing time

How long does it take your team to complete an entire payroll cycle? Tracking payroll processing time will tell you — providing valuable insights into operational efficiency.

This payroll metric involves monitoring all payroll activities, from collecting benefits data and calculating hours worked to generating and distributing payments and payslips. 

Streamlining these processes can save time, reduce workloads, and minimize errors. For example, an HRIS with people-enablement features (like Leapsome) can automate repetitive tasks, freeing HR professionals for higher-value work.

There are two ways to evaluate payroll processing time:

• From a granular perspective — Break down specific tasks, such as entering employee hours, verifying tax withholdings, or approving final payments.
  
  
• From a macro perspective — Assess how payroll fits into your broader people management strategy, including its impact on employee satisfaction, compliance, and financial planning.

To get the most out of this metric, take a combined approach:

1. Track specific tasks — For example, measure how long it takes to collect timesheets or generate payslips. Identify recurring bottlenecks, like delays in data entry, and explore ways to streamline or automate these steps.
   
   
2. Analyze overall efficiency — Use aggregated data to see how changes in specific tasks (like automating payslip generation) affect the big picture. Are payments being processed faster? Are errors or corrections decreasing?

By blending these perspectives, you can make short- and long-term improvements to payroll. This might involve automating repetitive tasks, creating clearer workflows, or integrating your payroll system with other HR tools. The goal is to save time, reduce errors, and build a smoother process for everyone involved.
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3. Compliance score

Staying compliant with tax and labor regulations is one of the most critical aspects of payroll management. A compliance score can help you track how well your payroll processes align with applicable laws and identify areas that need improvement.

There are a few different ways to calculate compliance score, but here’s what we recommend:

• Step 1 — Identify the key compliance factors that apply to your business 

Start by pinpointing the specific regulations and requirements your organization must adhere to. For example, if you employ staff across multiple countries, ensure you understand the tax calculations and withholdings as well as labor law compliance required by each jurisdiction’s laws. 

• Step 2 — Assign weights to each area, prioritized based on your company’s needs

If your main focus is international payroll tax compliance, for instance, you may want to give this factor a higher weighting and assign other factors (such as timely payslip distribution) a smaller percentage. This ensures that your compliance efforts align closely with your organization's key priorities.

• Step 3 — Assess compliance at each stage of your payroll process

Review your payroll activities step-by-step and determine how effectively each stage meets your compliance requirements. Assign a score to each activity on a scale of 1 to 100, indicating its adherence to relevant regulations. For example, you might evaluate the accuracy of tax calculations, the timeliness of payslip distribution, or the completeness of employee classification data.

• Step 4 — Calculate your overall compliance score 

Combine the weighted scores for each activity to determine your organization’s average compliance score. This provides a clear overview of your overall compliance health while highlighting specific areas for improvement.

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4. Payroll accuracy rate

If you’re running payroll preparation manually, you’re bound to make mistakes, especially as your business grows — and payroll errors can have severe repercussions for the company and its employees. Failing to pay employees accurately or on time leads to dissatisfaction, legal risks, and costly corrections.

Common errors to track include:

• Overpayment or underpayment
• Incorrect benefits deductions
• Inaccurate tax calculations
• Misclassification of employees
• Incorrect reflection of absences or work hours

That’s where payroll accuracy rate comes in: helping HR professionals assess the effectiveness of their processes and identify recurring issues that need resolution. 

Payroll accuracy rate is calculated using this formula:

(Number of accurate payrolls ÷ Total payrolls) × 100</tip box>

5. Error resolution time 

Mistakes happen — but how quickly can your team resolve them? 

Tracking error resolution time helps you understand how long it takes to identify and fix payroll mistakes. This payroll metric highlights inefficiencies and provides evidence for resource allocation decisions.

Shorter resolution times improve employee trust and satisfaction while reducing the need for off-cycle payroll runs. To address frequent issues, HR teams should examine the following:

• Staff shortages
• Inefficient technology
• Poor software adoption
• Gaps in employee training
• Inaccurate payroll data

Optimizing error resolution time benefits your team’s productivity and supports a smoother payroll experience for employees.
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6. Employee turnover rate

Some degree of employee turnover is inevitable. However, if you’re struggling to retain top team members over time, it’s critical to figure out the root causes and start addressing them before you start dealing with lower productivity, workload issues, and a less-than-ideal company culture.

A high turnover rate can significantly burden recruitment and training costs, so being proactive about retention and employee experience is essential. What’s more, tracking turnover rates alongside other key HR metrics such as eNPS score and recognition frequency demonstrates the value of investing in your people enablement approach. 

The formula to calculate your employee turnover rate is:

(Employees who left during a period ÷ Average number of employees during that period) × 100

In practice, this might look like:

3 (employees who left in the previous year) ÷ 50 (average number of employees in the same year) x 100 = 6% turnover rate

This rate will naturally change over time depending on your organization’s circumstances — for example, due to mergers and acquisitions, a period of layoffs, or moments of instability or uncertainty. Observing and staying ahead of these trends will help you anticipate team members’ feelings and needs and give you the opportunity to take meaningful action.

By combining turnover insights with other metrics, such as engagement scores or payroll accuracy, HR teams can create a more holistic people management strategy.
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Leverage technology to enhance your people processes

Having the right tools is crucial for HR professionals looking to streamline their workflows and improve organizational effectiveness.

Why not harness technology to help you manage your people processes more efficiently? If you choose the right HRIS software, you can level up your entire people management strategy.

Whether you’re a startup or a large organization, Leapsome offers a comprehensive solution for your people management needs. Our platform seamlessly integrates HRIS and people enablement — combining payroll and compensation management capabilities with performance management, feedback, goals, surveys, and learning in one intuitive interface.

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Disclaimer: This article is for informational purposes only and doesn’t offer legal, tax, or financial advice. While we’ve done our best to ensure accuracy and completeness, we can’t guarantee everything is up-to-date or error-free. For tailored advice, we recommend consulting a qualified lawyer or tax advisor.