There’s no doubt that payroll is essential to maintaining a happy and engaged workforce.
In fact, research has found that 24% of employees will start looking for a job after just one payroll error, and 49% will start looking after two – scary statistics for any business owner.
However, although payroll is essential to maintaining a happy workforce, it is often seen as a back-office function and simply the cost of do business.
This seriously underestimates the potential of payroll! The problem is that many businesses struggle to accurately measure the return on investment (ROI) of payroll software.
In this blog, we explore how to effectively measure payroll ROI and highlight why modern tools offer so much more than just a pay stub.
What exactly is ROI?
ROI measures what you spend (software costs, implementation costs, and staff time) versus the value that is then returned to the business.
Why is it important to measure payroll ROI?
Measuring the ROI of your salary investment lets you know if you are going in the right direction.
If you find that your payroll process is losing money due to inefficiencies, manual errors, or compliance fines, you have the opportunity to do something about it.
Alternatively, if your payroll is performing well and generating value, you can analyze success and look to capitalize on it.
Dispelling back-office allegations
Historically, payroll has been pigeonholed.
He is often seen as a necessary administrator who does not contribute to the bottom line.
This couldn’t be further from the truth.
With the right tools, payroll can move out of the back office, moving from a data entry function to a central source of information.
Done poorly, payroll harms employee trust, but if done strategically, it strengthens culture, optimizes costs and enables better decision-making.
How to measure the return on investment of payroll software?
To determine whether the payroll software being used or considered will justify the investment, we have formulated a list for benchmarking purposes.
| Area | Assessment | Aim |
| Treatment effectiveness | How many hours does your team spend on manual data entry and payroll calculations? | Use software automation to instantly manage tax code changes and calculations, freeing up workdays for strategic tasks. |
| Accuracy and errors | How often do you need to make corrections due to human error? | Automation and integration with HR software helps ensure calculations are 100% accurate the first time, avoiding costly rework and employee dissatisfaction. |
| Compliance risk | Have you had to pay fines for late submissions or struggled to keep up with changing legislation? | Ensure submissions to HMRC are sent automatically after each payroll run, eliminating the risk of penalties and ensuring you never miss a deadline. Payroll systems are automatically updated to reflect the latest legislative changes, ensuring you are always compliant. |
| Employee Requests | How much time is spent answering questions like: Where is my payslip? Can you send me my P60? | Employee self-service portals, integrated with payroll software, allow employees to instantly access their payroll documents, significantly reducing administrative queries. |
| Reports | How long does it take to produce a report on total labor costs or gender pay gaps? | Real-time reporting in the software transforms days of data collection into seconds, with access to meaningful information available directly in the system. Run predefined reports on frequently reviewed areas or create custom reports to meet your exact needs. |
| Financial well-being | Is financial stress affecting your employees? | Integrate Earned Wage Access (EWA) platforms to give employees the ability to access a portion of their salary before payday. |
| System integration | Do you manually copy data from your HR system to your payroll system? | Create a single source of truth by integrating HR and payroll, so all data changes are automatically pushed into the system. Eliminate the risk of human errors associated with manually entering new data. |
| Speed of payment and cash flow | How often do you struggle to meet BACS deadlines due to last minute changes or delayed approvals? | Use the Faster Payments integration to process payments closer to payday, giving you the flexibility to handle last-minute changes that arise. |
Calculate the return on investment of your payroll software
Here is a simple framework for calculating your potential return:
Costs
- Annual software subscription: £1,300
- Implementation and training costs (one-off): £900
- Total first year cost: £2,200
Savings
- Hours saved on manual processing: 8 hours per month = £2,400 saved (based on an hourly rate of £25)
- Compliance fines avoided: £300
- Time saved on queries and corrections: 2 hours per month = £600 saved (based on an hourly rate of £25)
- Searching for missing information: 2 hours per month = £600 saved (based on an hourly rate of £25)
- Total annual savings: £3,900
Calculation of return on investment
- (£3,900 – £2,200) ÷ £2,200 × 100 = 77% return on investment in the first year
- During the second year and beyond (no implementation costs), the ROI climbs to 200%
Taking your payroll to the next level
Hopefully this analysis has provided some concrete insight into the benefits of investing in payroll software.
While the initial cost can sometimes seem like a barrier, the long-term savings in time, accuracy, and employee retention far outweigh the expense.
Ready for the next step? We offer a practical guide that walks through the employee lifecycle, exploring common HR and payroll challenges, and the role software plays.
IRIS: painless payroll
Ready to take your payroll to the next level? Do you want features that make your administration easier and allow you to be more strategic?
At IRIS, our award-winning payroll solutions provide you with the tools you need to not only survive, but thrive.
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