The Impact of Payroll Decisions on Your Business Performance

the impact of payroll

In 2015, Gravity Payments CEO, Dan Price, raised the minimum wage of all his employees (120 people) to $70,000/ year — nearly double their previous salary. To pay for this largess, Price took a hit on his own salary–dropping it from $1 million to match that of his employees. Conservatory talk radio personalities and Fox News predicted the impact of payroll decisions made by the company would close its doors in just a short time, costing its 120 employees their livelihoods and forcing the American worker to support them through social programs like unemployment insurance and food stamps.  Instead, the company weathered a pandemic, high wages, and other economic woes to increase its revenue by 10-fold.

The media, in general, said we would fail. Or even in some cases, rooted for us to fail

impact of payroll decisions
Dan Price. Image courtesy of Business Insider

During the pandemic, Gravity Payments did suffer a 50% loss in revenues, just as other businesses did. However, employees willingly gave back much of their salary increase to keep the business afloat and eliminate layoffs, despite the failure of many similar businesses when faced with such a steep economic decline. Employee wage concessions contributed significantly to the firm’s ability to survive. Price expects 2021 to again offer a robust financial year for his company, where grateful employees bought him a Tesla in thanks for all he does for them.

The impact of payroll decisions

So, how did the conservative media get it so wrong?

They misunderstood the very nature of a company’s relationship with its employees and how that relationship informs the financial well-being of the company, Maybe it’s an example of unintended consequences or arcane thinking from the industrial revolution, where low-skilled employees dominated the landscape and were deemed highly replaceable. Working conditions were poor, the pay was abysmal, and much of an employee’s salary was given back to the company in the form of rent and food from the company store.

industrial revolution working conditions
Image courtesy of The Conversation

Of course, these conditions led to changes such as the formation of unions and government regulations including the minimum wage act (which hasn’t changed since 2009 despite a 24% increase in inflation), OSHA, and other forms of employee protections. In today’s competitive environment for hiring the best employees, this view of employees contributes significantly to labor shortages reported by the press.

Of course, the impact of payroll on the big quit is only part of the issue. Employees want better working conditions, with 40% of white-collar workers threatening to quit rather than return to the office full time. They want support for their lives outside of work, such as flexibility, family leave, help with childcare (which in many cases is more expensive than college tuition), more responsibility, more opportunity to advance, more variation in their tasks, and many other changes. These are big societal issues and deserve attention in their own right but for today, we’ll focus on the impact of payroll on company performance.

According to this article from Forbes, employers should embrace the “big quit”, resulting in 4 million US employees quitting their jobs in April alone:

Clearly, employers no longer hold the power. Instead of shying away from this new dynamic, I believe that bosses should embrace this change and meet their employees where they are.

So, let’s talk about why employers should embrace the big quit. Recognizing that employees make a valuable contribution to your business success is the first step toward improving your business performance. Below we discuss just a few of the ways employees support your performance; performance gains are nearly impossible to achieve without a happy workforce.

Customer service

Company’s live or die based on their ability to make customers happy. And, it’s nearly impossible to have happy customers without happy employees, especially when it comes to front-line employees and customer service folks. When employees are happy, their friendly, outgoing, and willing to go the extra mile to make customers happy. You can’t build this into your employee manual or incentive plan and expect to generate happy employees. And, you can’t fire employees for simply doing their job even if they’re not overly enthusiastic about the work; it’s just too expensive to have constant turnover.

Instead, you must hire the right people, motivate them properly, pay them fairly, and offer positive feedback if you hope to achieve superior customer service.

Productivity

There’s a strong correlation between employee satisfaction and productivity, according to a study by economists at Warwick University. In fact, happy employees produce 12% higher productivity while unhappy ones produce 10% lower productivity — a total impact on productivity of 22% for happiness versus unhappiness.

Loyalty

Losing an employee earning $8/hour costs the average company nearly $3500 in 2021. Replacing employees costs, on average, 33% of their wage, according to this source. That includes costs of advertising, recruitment, pre-employment testing (ie. aptitude tests), and things like background checks or drug testing. The cost doesn’t stop there, as your company faces additional costs due to employee turnover, including training costs and lower productivity costs as the employee becomes proficient at their job.

The impact of payroll decisions and other benefits significantly reduces the costs associated with turnover. Besides, loyal employees act to support your brand through recommendations and supporting your social responsibility commitment, such as helping out with brand participation in Habitat for Humanity or serving at a local food bank.

Improving the impact of payroll

Not everything involved in payroll means you need to spend more money on payroll. Some of it simply means doing a better job of managing your payroll function. Here are some ways to ensure you get the right pay out to employees on a regular basis.

Create & maintain a schedule

One very easy way to make your payroll procedure a lot easier is to create and maintain a schedule that you then follow. Scheduling pay periods that fit both your organization’s needs and those of your employees means you don’t have to adjust your schedule due to cash flow problems or make employee loans on a routine basis to keep them afloat. Consider a monthly or bi-monthly schedule as most bills are due based on calendar months rather than weeks.

Generate accurate reports

Having reports is something that also helps you to keep on top of your payroll much more effectively. Generate reports for planning and to keep employees informed about various aspects of payroll, such as accrued vacation and sick days, as well as including peripheral items for your unemployment claims management. The more accurate reports you have, the better off you are in terms of planning and forecasting for future job needs. If nothing else, those reports will allow you to have a better idea of where things are out of whack so you can then fix it much more easily.

Automate

Although you might not want to automate absolutely everything about your payroll procedure, you should make sure that you automate certain functions where there’s an incentive to do so. Automating those things that are more accurately and effectively handled this way saves you a lot of time, money, and hassle, while it makes the payroll process a lot easier each month. Automation also generally results in many fewer errors, meaning that you ensure you pay everyone exactly the right amount and payroll is ready on time every month. The right level of automation really is one of the best things you can do for your payroll system, so make sure that you are thinking about this if you don’t already do it.

Conclusion

Those are just some of the best ways in which you can hope to improve your payroll procedure. As long as you bear those things in mind, you should find that you are able to have a much better procedure in general, and everyone benefits from that.

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