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.

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.