With low unemployment rates and widespread talent shortages in many in-demand fields, employees are one of the most important assets at today’s companies. They’re important because talent helps distinguish one company from another, becoming a key part of a company’s competitive advantage. However, they’re also important because employees are a major expense that requires careful management. For all these reasons, companies need to track their payroll headcount ratio.
What Is the Payroll Headcount Ratio?
On the most basic level, the payroll headcount ratio compares full-time and part-time employees, and possibly contractors or freelancers as well. It could be based on the number of employees, their associated expenses, or some other factor. In all cases, the point is to evaluate how the company utilizes its labor force.
Here’s an example. If the ratio is rising, it indicates the company is adding full-time employees and adding labor costs. Combined with other key performance indicators, the payroll headcount ratio reveals how financial performance drives the staffing mix, and vice versa. Therefore, accountants can study if or how the additional full-time employees contribute value to the organization.
How to Use the Payroll Headcount Ratio
The payroll headcount ratio is just one piece in a larger decision-making toolkit composed of a number of financial KPIs, each illustrated in a dedicated dashboard. With a dashboard specifically for labor-related metrics, decision makers never lose sight of how the positive and negative realities of the staffing situation affect the company’s fortunes.
After deciding to set up a dashboard, choose the data to include. As suggested earlier, there are lots of ways to calculate the headcount ratio, and many more ways of conceptualizing the workforce over time. What works for one company won’t necessarily work for another, so it’s important to select metrics (and the underlying data) relevant to what the dashboard users need.
Next, design the dashboard so that it clearly presents the most important information and surrounds it with context. Again, the design is subjective, but many users incorporate historical data in a grid format and put the averages in a separate section surrounded by visualizations to illustrate the trends. Ideally, users understand the present staffing situation at a glance but learn about the underlying drivers after reading everything on the dashboard.
The final key to using a payroll headcount ratio is keeping the dashboard information accurate and updated. Someone could go in and manually adjust the numbers every time the workforce changes, but that’s inefficient and prone to error. A better approach relies on automation to update the numbers whenever they change. That way, decision makers have a real-time look at headcount, and the information isn’t compromised by human error.
Sound as this advice may be, it doesn’t necessarily paint a mental picture of what a great payroll headcount ratio dashboard looks like. That’s why our team at insightsoftware created one that’s free for you to download. Get your copy today, experiment with some of the built-in dynamic features, and consider how this and other dashboards could help inform everything you do.