The Return on Investment of
Labor Management Automation

When you purchase anything for business you should assess what you will get in return. How fast will a product pay for itself? We'd show you an example of what you could save by an automatic time and attendance system. Take some time to do the math using our ROI worksheet for Microsoft Office, or call us and we will be glad to help you figure out how much you could save.

Calculating Return On Investment

Automation reduces repetitive manual tasks found in manual payroll systems requiring time card collection corrections and calculations performed by the payroll manager. Manual systems lead to errors and hurt productivity. By eliminating these mundane tasks you can give your employees more time to improve the company as a whole. This simple exercise will help you to determine your approximate ROI received from automating payroll. This information is sourced from the American Payroll Association (APA).

Automation ROI:

  1. How many employees currently punch in and out on a time clock? 500
  2. What is their average hourly rate? $16.00
  3. How many minutes does it take to review and total each time card? 3 (The APA estimates 7 minutes)
  4. What is the hourly rate of the person reviewing the time cards? $16.00
  5. What percentage of the calculation of the cards is inaccurate due to improper rounding, calculation errors, transposition errors and improper application of payroll rules? 2% (The APA estimates 1-8 %)
  6. How many standard hours do your employees work in a pay period? 40
  7. 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. We have estimated conservatively 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: $1,333.33
  • Monthly savings (4.33 weeks x weekly savings) = $5,773.33
  • Yearly savings ( 52 weeks x weekly savings) = $69,333.33

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. We have estimated a conservative 20 minutes.

  • Daily lost productivity = 20 min. / 60 min. = 0.33 hours
  • 0.33 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. $13,200.00
  • Total wages recaptured monthly = total wages recaptured weekly x 4.33 = $57,156.00
  • Total wages recaptured yearly = total wages recaptured weekly x 52 weeks = $666,400.00

Savings from eliminating errors:

Studies have shown inaccuracy in the calculation of totals to be between 1-8%. 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% = $6,400.00 weekly savings.
  • Weekly savings X 4.33 = $27,712.00 monthly savings.
  • The savings recaptured yearly is equal to the recaptured weekly saving x 52 weeks in the year.
  • Weekly savings X 52 = $332,800.00 yearly savings.

Total savings summary

  • Weekly audit savings = $1,333.33
  • Weekly error savings = $6,400.00
  • Weekly wages recaptured = $13,200.00
  • Add the above three numbers to arrive at the per weekly payroll savings = $20,933.00
  • Weekly savings X 4.33 = $90,641.33 monthly savings.
  • Weekly savings X 52 = $1,088,533.33 yearly savings.

Spreadsheet:

In the downloadable version is an embedded Excel Spreadsheet filled with the above data. This document will open in your browser using another window. To download to your PC, click on file in the top left hand corner of the browser and click on save as. Then select the destination of where you wish to save the document. If the spreadsheet is double-clicked on when using Microsoft Office the Excel spreadsheet will open for edit using Excel. If you don't have access to Microsoft Office 97 or it doesn't work please contact us for assistance.

Download the Return On Investment spreadsheet. You must have Microsoft Office 97 or later to view this document.