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Calculating return on investment

Automation reduces repetitive manual tasks found in manual payroll systems requiring time card collection corrections & calculations usually by the payroll manager. Manual systems lead to errors and hurts productivity. If these mundane tasks could be eliminated or shortened it would give employees more time to improve the company as a whole.
This simple exercise will help you to determine your approximate R.O.I. received from automating payroll. The American Payroll Association (APA) provides this information.

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Automation ROI

  • How many employees currently punch in and out on a time clock? 500
  • What is their average hourly rate? $16.00
  • How many minutes does it take to review and total each time card? 3 (The APA estimates 7 minutes)
  • What is the hourly rate of the person reviewing the time cards? $16.00
  • What % of the calculation of the cards is inaccurate do to improper rounding, calculation errors, transposition errors and improper application of payroll rules? 2% (The APA estimates 1 to 8 %)
  • How many standard hours do your employees work in a pay period? 40
  • How much time per employee do you lose each day due to: long lunches, early departures, breaks,supervisor rounding, tardiness, incorrect totaling. 20  (The APA estimates 49 minutes per employee per day)

Card audit savings:

Studies have shown that manual calculation of time cards takes approximately 7 minutes per card each pay period. Conservatively I have estimated 3 minutes per card. Automation will reduce that to 1 minute per card.

  • Minutes saved per card X number of cards
  • 2 min. X 500 cards = total savings in minutes of 1000.
  • Total minutes saved weekly = 5000
  • Total hours saved weekly = total minutes/ 60 minutes = 83.3
  • Payroll managers rate X hours saved weekly = savings in dollars weekly: $1333.33
  • Monthly savings (4.33 weeks x weekly savings) = $5773.33
  • Yearly savings ( 52 weeks x weekly savings) = $69333.33

Savings in lost time:

Lost time or “time theft” savings consists of wages recaptured by the systems rounding and restriction capabilities. The average weekly “theft” (long lunches, tardiness, etc.) Is 49 minutes according to the APA. I estimated a conservative 20 minutes.

  • Daily lost productivity = 20 min. / 60 min. = .33 hours
  • .33 x average employee rate = average wages overpaid daily. $5.28
  • Multiply by 5 days = average wages overpaid weekly. $26.40
  • Multiply by number of employees = the total wages recaptured weekly. $13200.00
  • Total wages recaptured monthly = total wages recaptured weekly x 4.33 = $57156.00
  • Total wages recaptured yearly = total wages recaptured weekly x 52 weeks = $666400.00

Savings from eliminating errors:

  • Studies have shown inaccuracy in the calculation of totals to be between 1 and 8 %. We have used 2% to be conservative.
  • Number of employees X average hourly rate X average hours worked weekly = total weekly payroll expense. $320,000.00
  • The total weekly savings from the elimination of errors is the total weekly payroll expense X the 2% human error factor:
  • Weekly payroll X 2% = $6400.00 weekly savings.
  • Weekly savings X 4.33 = $27712.00 monthly savings.
  • The savings recaptured yearly is equal to the recaptured weekly saving x 52 weeks in the year.
  • Weekly savings X 52 = $332800.00 yearly savings.

Total savings summary

  • Weekly audit savings = $1333.33
  • Weekly error savings = $6400.00
  • Weekly wages recaptured = $13,200.00
  • Add the above three numbers to arrive at the per weekly payroll savings = $20,933.33
  • Weekly savings X 4.33 = $90,641.33 monthly savings.
  • Weekly savings X 52 = $1,088,533.33 yearly savings.

Automating the Time and Attendance process for your employees with integrated punch clocks can save your organization hundreds of thousands of dollars each year.

We’ve outlined several different ways this occurs. First, automated systems reduce time card audit time and the system saves employee labor time. Next, they eliminate the wages paid to employees taking long breaks or lunches or showing up late. Lastly, an automated Time and Attendance system eliminates human error - adding to the savings.

How Much Can Your Company Save?

  • 10 Employees: About $4,000 / Year
  • 25 Employees: About $10,000 / Year
  • 50 Employees: About $20,000 / Year
  • 100 Employees: About $40,000 / Year
  • 500 Employees: About $200,000 / Year
  • 1000 Employees: About $400,000 / Year

And that's based on conservative estimates!

As proof, we encourage you to calculate your own return on investment and note how the much money the average company loses in profits through inefficiency without the automated process.

1) Reducing Time Card Audits

An automated time-tracking payroll process reduces the amount of time an auditor spends calculating time card data, thereby enabling him or her to focus on other areas of the job. The American Payroll Association (APA) estimates that a payroll employee spends about 6 minutes calculating the data on a time card—time that really adds up.

Audit Time Savings

Number of Employees 25 50 100 500 1,000
Minutes Saved Per Time Card* 5 5 5 5 5
Total Hours Saved Weekly 2.08 4.17 8.33 41.67 83.33
Wages for Payroll Clerk $20 $20 $20 $20 $20
Weekly Savings $41 $83 $166 $833 $1,666
Monthly Savings $166 $333 $666 $3,333 $6,666
Yearly Savings $2,166 $4,333 $8,666 $43,333 $86,666

* Studies from the APA show that manual totaling of timecards takes approximately six minutes per card. An automated system will reduce the process to just one minute.

2) Recapturing Wages

Another factor to consider when calculating the return on investment for an automated employee time and attendance system is to look at the amount of wages that are “recaptured” after being “taken” by employees who take long breaks or come in late. An automated employee time tracking system has the capability of monitoring breaks and ensures the correct time is calculated. (The system works, too-- there have been times where I’ve forgotten to clock out on a break and the system has automatically counted the break for me.) The APA estimates that the average employee “theft” is about 49 minutes a week, which translates to about 9.8 minutes per work day. The following graph uses a more conservative 6 minutes, but the savings are still astronomical.

Lost Productivity Savings

Number of Employees 25 50 100 500 1,000
Lost Productivity Per Day (Min.) 6 6 6 6 6
Average Hourly Rate $10 $10 $10 $10 $10
Average Wages Overpaid Daily $1 $1 $1 $1 $1
Average Overpaid Weekly $5 $5 $5 $5 $5
Total Wages Recaptured Weekly $125 $250 $500 $2,500 $5,000
Total Wages Recaptured Monthly $500 $1,000 $2,000 $10,000 $20,000
Total Wages Recaptured Yearly $6,500 $13,000 $26,000 $130,000 $260,000

 

3) Reducing Human Error

Everybody makes mistakes. That’s why automating the system helps save money from day one. Simple mistakes like mental math slips or inputting a number incorrectly upon data entry can end up costing a company thousands by the end of the year. The final method of cost savings we’ll discuss is eliminating human error present in the manual system. The APA has cited a human error rate of between 1-8%. The graph below shows an even more conservative rate : 0.25%.

Savings from Human Error Elimination:

Number of Employees 25 50 100 500 1,000
Average Hourly Wage $10 $10 $10 $10 $10
Average Hours Worked Weekly 40 40 40 40 40
Total Weekly Payroll $10,000 $20,000 $40,000 $200,000 $400,000
Human Error Factor* 0.0025 0.0025 0.0025 0.0025 0.0025
Weekly Savings $25 $50 $100 $500 $1,000
Monthly Savings $100 $200 $400 $2,000 $4,000
Yearly Savings $1,300 $2,600 $5,200 $26,000 $52,000
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* Studies have shown that the inaccuracy of time calculation to be between 1% and 8%. We have used a very conservative 0.25%.

Therefore, as you can see, small numbers add up very quickly to creating big headaches if a company isn’t utilizing automated payroll systems. Again, if you add these savings up, even a small company will see the ROI within one year.

Call us at 888-861-0933 or contact us to see how we can tailor an automatic employee time and attendance system to fit your company’s requirements in order to prevent you from losing money due to inefficiency.

The information for this entry was borrowed from the following article, which was researched and written by the esteemed Ed Squires, our President: “How to Calculate Return on Investment for Automatic Time and Labor Management and Five Pitfalls to Avoid When Purchasing a Time and Attendance System”

2016-11-27T20:29:20+00:00