Payroll on the Loose?

According to a study of 300 large corporations (over 10,000 employees and $5 billion revenue) by UKG (a workforce management firm) and the KPMG accounting firm, organizations can lose 2% to 4% of their total spending on labor via “payroll leakage.” That is defined as “consistent, unintended financial losses”; these can be due to process problems, system limitations and even fraud. Another shocker is the following: “38% of companies reported annual payroll losses of between $1 million and $5 million. The report found that a loss of as little as 1% could amount to as much $15 million at a large company.” While the majority tracked payroll accuracy, fewer than half tracked “first-time-right” payroll execution and actual processing cost. While the former figures are dramatic in size because of the size of the subject companies, the overall message is that closer attention to payroll can result in cost savings. 

Other studies confirm that pay is a “hygiene” factor: its positive effect is minimal when things go according to plan (i.e., as expected), but its negative effect can be considerable – and rapid – if things go wrong. Ensuring accuracy throughout the process – from enrollment to disbursement – is essential.