Four steps to turn payroll data into business insights

Not having a formal payroll strategy can increase payroll risk and compliance issues, negatively impacting the bottom line. Here's where to start.

This article is brought to you by BIPO.

As businesses become increasingly data-driven, the potential for using payroll data to gain valuable insights requires urgent attention from the global business and HR community.

In this article, we speak with Karen Lee, MD (SEA & Oceania) of BIPO (pictured below), to discuss how businesses can leverage their payroll data to gain a competitive edge. With over a decade of experience in the industry, Lee shares her expertise on the importance of payroll data analysis and how it can provide critical insights into a company's workforce, helping to identify trends, address issues, and make informed decisions. From analysing employee turnover rates to identifying performance gaps, this article explores how payroll data can be utilised to drive growth and success.

Impact of not using payroll data & business intelligence tools

Ignoring the potential insights that payroll data provides can have significant implications for businesses. Lee warns that failure to leverage payroll data can lead to missed opportunities for growth and success. Additionally, not having a formal payroll strategy can increase payroll risk and compliance issues, negatively impacting the bottom line.

Lee states, "The consequences of not using payroll data and business intelligence tools can range from decreased employee satisfaction and retention to financial and legal penalties for non-compliance."

Without proper analysis and utilisation of payroll data, companies may be unable to identify trends and issues within their workforce, leading to a lack of informed decision-making. This, in turn, can lead to reduced employee satisfaction and retention, negatively impacting the company's overall performance.

Her observations on the potential challenges faced, and their solutions, include the following:

1. To solve: Inefficient decision-making

• Payroll data and business intelligence tools
Such tools provide valuable insights into a business's financial performance, employee productivity, and customer behaviour. With this data, decision-making can be based on complete information or real scenarios, leading to better decisions that negatively impact the business.

2. To solve: Inaccurate financial reporting

• Payroll data
Crucial for accurate financial reporting, such as calculating taxes, benefits, and other payroll expenses. With proper reporting, a business may avoid legal and financial penalties, including fines arising from non-compliance.

3. To solve: Lack of transparency

• Business intelligence tools
BI tools provide transparency into a business's operations, essential for accountability and compliance. Without this transparency, a company may be more vulnerable to fraud, errors, and unethical behaviour.

4. To solve: Inability to track performance

• Identify trends and patterns
Payroll data and BI tools allow a business to track its performance over time and identify trends and patterns. With this ability, a company may take advantage of opportunities for growth and improvement and recognise and address potential problems.

5. To solve: Loss of competitive advantage

• Payroll data and BI tools
Businesses that use payroll data and business intelligence tools gain a competitive advantage by identifying opportunities for growth and innovation. In instances such as labour and workforce planning, predictive analysis and "trend spotting" help to ensure long-term strategies are in place to drive the business. In addition, these tools are necessary for a company to stay relevant in a rapidly changing global market.

How to turn payroll data into business insights

Lee added, "Just like digitalisation is a game changer as businesses continue to shift gears and adapt, so will be the use of data, people analytics and BI tools in steering business leaders in their decision making." She continued, "In the last few years, AI and RPA (robotics process automation) use in HR management and operations is gaining momentum given its capacity to remove repetitive tasks."

Lee recommends businesses consider analysing the following payroll data as a start and fine-tuning the data and process:

• Core salary payments (regular payments to permanent or temporary employees),
• Contingent workforce costs (salary payments to contractors or freelance workers outside the standard payroll),
• Bonuses,
• Payroll taxes/withholding taxes,
• Employee benefits payments, and 
• Compliance information (e.g. labour/payroll laws that businesses must comply with across countries).

In addition, she highlighted four steps to turn payroll data into business insights:

• Step 1: Identify key performance indicators (KPIs)

Identify the key performance indicators (KPIs) that matter most to the business. These vary depending on the nature of the organisation but may include metrics such as labour costs, employee turnover rates, and productivity levels. By tracking these KPIs over time, HR leaders can better understand how payroll expenses impact the business and where adjustments are made to improve the overall performance.

• Step 2: Analyse trends and patterns

Once these KPIs are identified, start analysing the payroll data to identify trends and patterns. This usually involves looking at data over a specific period (such as quarterly or annually) or analysing data by department or location. By identifying patterns and trends in the data, businesses can better understand how payroll expenses impact the business and target specific areas to change and improve outcomes.

However, Lee cautions that while analysing trends and patterns are helpful, putting in place benchmarks is just as critical. Understanding how the company performs and compares, whether by job level, department, within the organisation or across industries, enables businesses to develop strategies to improve their market position.

• Step 3: Use visualisation tools to communicate insights

While analysing data is critical, it is equally important to communicate such insights effectively to stakeholders within the organisation. One way to do this is by using visualisation tools like charts and graphs to concisely communicate findings.

Insights presented in a visually appealing and easy-to-understand format are a quick and effective way to communicate information. In addition, it pinpoints specific areas that require more attention or improvement and identifies hidden red flags, such as hidden costs and opportunities.

• Step 4: Continuously monitor and adjust

Finally, it is essential to remember that payroll data is constantly changing. As such, businesses need to adjust the insights gained over time. Continuously monitoring payroll data and adjusting as required ensures HR and finance teams work with the most up-to-date and accurate information. This may also involve changing the payroll processes or adjusting KPIs based on new business objectives or market conditions.

Today, HCM solutions, such as BIPO HR Management System, incorporate BI tools that enable users to extract payroll information, labour costs and other critical information to create snapshots and visualise a company's global workforce on a single dashboard. Other intuitive features include setting targets and monitoring headcount and payroll cost per head to ensure benchmarks are in place to address pain points and implement the necessary action plans.

A reality check: Potential challenges & opportunities

Careful planning, stakeholder buy-in, and an effective communications plan are necessary. Lee stressed, "Businesses will meet potential roadblocks. However, these challenges can also directly, and positively impact the business."

Common challenges faced include:

• Data integration: Payroll data often exists in silos, making it difficult to combine with other business data, such as finance. This makes gaining a complete picture of the business complex and often hinders the ability to generate insights.

• Data accuracy: Payroll data can be complex and subject to errors, such as incorrect tax calculations or discrepancies in employee hours. These errors can skew the data and lead to inaccurate insights.

• Data security: Payroll data is sensitive and must be protected from unauthorised access. Businesses must ensure that they have appropriate security measures to protect the data and comply with data privacy regulations.

• Data interpretation: Even with accurate and integrated data, businesses must have the expertise to analyse and interpret the data to derive meaningful insights. This requires a skilled team with experience in data analysis and business intelligence.

• Communication and action plans: The ability to visualise the data in a way that is easy to understand and relevant to the business is an art. Often, the rich story that data presents loses its significance and importance. Find an internal advocate to champion the numbers and communicate the narrative to key stakeholders to gain buy-in right from the start.

The final word: What's in it for the business?

Turning payroll data into business insights is crucial for organisations that want to make informed decisions about their workforce.

Companies gain valuable insights into employee productivity, compensation trends, and budget allocation by utilising data analytics, BI tools and techniques. These insights are the foundation for strategic planning, helping companies optimise payroll processes to increase efficiency and reduce costs.

In addition, companies need to invest in the technology and expertise to effectively analyse payroll data to translate it into actionable insights. By doing so, organisations can stay competitive and make data-driven decisions that drive success.

A significant first step is partnering with a reliable HR and payroll solutions provider like BIPO, with global expertise and technology capabilities. From BI and budgeting tools, such third-party providers also ensure compliance across jurisdictions, including data security and privacy issues from handling sensitive employee data.

BIPO's total workforce solutions are designed to help businesses of all sizes expand and compete in global markets by leveraging technology such as its award-winning human capital management (HCM) suite, global payroll outsourcing, and employer of record (EOR) service offerings.

To find out more about how BIPO can help transform your payroll data into business insights, connect with the team at: [email protected]

Lead image / Shutterstock
Interviewee photo / Provided

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