Cash Management

Streamlining Cuts Payroll Costs: Survey

The most efficient companies spend 79 percent less on reporting workers' hours than the least efficient companies do.
Stephen TaubMarch 8, 2004

Companies can pare their payroll expenses by as much as 70 percent by streamlining the flow of data, increasing control, and other techniques, according to a Hackett Group survey of nearly 90 large U.S. companies with revenues ranging from $740 million to $127 billion.

Companies that fell in the first quartile in terms of the efficiency of payroll operations among those surveyed spent 70 percent less than companies in the fourth quartile. That amounted to $117 per employee a year for the most efficient companies and $407 per worker for the least efficient ones.

One area in which first-quartile companies pay out much less than less efficient ones is in the reporting of time worked: First-quartile companies spend an average of 79 percent less on that than fourth-quartile ones, or $28 per employee for the former and $129 for the latter.

System costs, employee data maintenance, and handling inquiries and responses are other areas with big cost gaps, according to Hackett.

Further, payroll staffs at top-quartile companies support 3.4 times more employees than those at fourth-quartile outfits do.

In time reporting alone, fourth-quartile companies have more than 5 times the number of staff per billion dollars in revenue of first-quartile companies (5.1 staff versus 1.0).

The keys are apparently to cut down on the coding, make data flow more streamlined, and tighten controls. There are stark contrasts between first-quartile and fourth-quartile companies in terms of the number of pay and time codes they rely on, according to Hackett. There are also sharp differences in how simple their processes are and how efficiently they push data through their systems.

Fourth-quartile companies, for instance, use 2.8 times more pay and time codes than first-quartile companies do. Top-quartile companies also are about 2.5 times more likely to require little or no supervisor review of professional employee time. And 61 percent of all first-quartile companies have completely eliminated time reporting for professional employees.

In terms of control, top companies are almost twice as likely to have flattened the payroll chain of command and increased the span of control. They are also 2.4 times more likely to have realigned payroll sub-processes to provide a single point of control, according to Hackett.