When considering automating payroll and time and attendance, many employers balk when they ask themselves how much the system will cost to implement. In the current regulatory enforcement-focused and litigious business environment, the answer may be entirely pragmatic: how much money do you not want to pay in a wage and hour investigation or lawsuit?
The American Payroll Association (APA) perrformed a study in the early part of the last decade that has become a benchmark for return on investment estimates when automating payroll and time and attendance systems.
The APA study found that employee time theft, where employees clock in late, clock out early and take long lunches and breaks, averages 10 minutes per employee per day; payroll personnel take 5–6 minutes to reconcile and calculate each time card each pay period; human error costs 1%–8% of total annual gross payroll. Using these three statistics, a Washington Business Journal article estimated the annual savings of automating the payroll process for a 25 employee company that paid an average wage of $10 per hour amounted to $8,400.
A different study estimated that the cost of unearned paid time off (PTO) averaged a conservative estimate of half a day per employee per year. Unearned PTO occurs when employees take advantage of manual time off tracking systems to take time off they haven’t earned.
Combining this fact with the APA’s findings and assuming full-time work with no overtime, employers who use manual payroll processes may pay an estimated additional 3.4% in effective wages to each non-exempt employee compared with their raw hourly wage rate. So, an employee earning federal minimum wage of $7.25 per hour could effectively cost an employer $7.50 per hour.
These raw estimates make a very effective case for automating payroll and time and attendance. Once implemented, the savings compound. (See how much by using this webapp.) Employers get back most of the 5–6 minutes per timecard per pay period, which gives time back to payroll and HR to focus on other strategic initiatives that save more time and increase productivity.