According to the Bureau of Labor Statistics, employers pay an average of $35.28 per employee hour worked in labor compensation. On top of the compensation costs, research by ADP on the administrative costs of payroll and HR found that companies pay anywhere between $1400 to $2000 per employee per year to administer payroll, workforce and time and attendance management, and other labor force management needs. No wonder labor costs are typically one of the single largest expenses on any company’s P&L statement.
While labor costs will always be a large chunk of your budget and revenue, you do have options to take control over just how large that chunk will be. Ever-expanding labor and payroll costs aren’t inevitable. Here are four ways your payroll department can reduce labor and payroll administration costs.
Only pay for actual time worked
This shouldn’t be a radical idea, but it is. If any portion of your time tracking is down manually, human error will certainly result in paying people for time not worked. Yet even companies using just any time clocks and time and attendance software may still be overpaying.
First, make sure your time tracking is integrated with payroll, so your payroll run is based on actual time collected, and not time scheduled. Also consider that some time and attendance systems round up punch times, in some cases as much as to the nearest quarter hour. When selecting a time clock and T&A solution, you want a system that records and uses actual, to-the-minute time punches when calculating hours worked and payroll. This eliminates time theft, paying people who arrive a bit late or leave a bit early for a full shift.
Of course, there’s always the issue of buddy punching, which costs some employers $373 million each year. Using a biometric time clock eliminates the ability for co-workers to clock in for each other. If a biometric time clock isn’t an option for your company, time clocks that use PINs or passwords can reduce buddy punching as people are naturally reluctant to share passwords. Whether eliminating or reducing buddy punching, using the right time clock can go a long way to reducing payroll costs.
Having the more accurate data collection capabilities of an automated time clock that integrates with your time and attendance, and payroll systems is also the basis for three more ways to reduce labor administration costs.
Let employees self-serve certain payroll and HR functions
A time and attendance system can do so much more than track employees’ attendance. More sophisticated systems allow employees to update personal information that impacts payroll and tax calculations, which reduces the risk of payroll errors and labor law noncompliance (more on these a bit later). They can also be used by employees to submit vacation requests, among other scheduling and compliance benefits.
Employee self-service time and attendance solutions have the additional benefit of reducing labor costs by reducing the workload of HR staff, which can allow for a smaller HR team. The same ADP report mentioned above, also found that large companies enabling workers to self-serve some HR and payroll functions reduced the total cost of ownership of their workforce administration by 50 percent.
Reduce administrative costs correcting payroll errors
Have fewer payroll errors. That’s one place to start. As no T&A and payroll systems can reduce errors to absolute zero, the second line of defense is being able to quickly and accurately correct any payroll errors that do occur. According to APQC’s Open Standards Benchmarking research, the top performing companies resolve a payroll error in two to four business days, while the bottom performers can take anywhere from five to 10 business days. That’s a lot of admin and resource effort spent after the fact.
The benchmark research also found an inverse correlation between how many FTEs a company had managing payroll and time reporting issues and how quickly they could resolve errors. Clearly, companies automating and integrating their time collection and payroll systems are able to resolve any error more quickly – and at less expense, including by needing fewer FTEs to manage it all.
Minimize risk for noncompliance
Taking steps like letting employees keep their personal information current and using a payroll system with sophisticated business rule capabilities help companies stay compliant with both federal and state labor laws. Automated time clock and T&A systems help companies stay legally compliant and compliant with any contractual scheduling restrictions or compensation terms.
From fines to penalties to legal damages – the potential costs for noncompliance with legal and contractual labor and payroll obligations can be severe. A leader in time-and-attendance solutions since 1991, Accu-Time Systems offers a full range of employee-self service solutions. Contact us today to learn about the options that best suit your company and its workforce.