To get a feel for the FTR rates out there in my global payroll network, I ran a poll on LinkedIn asking the network to answer this question: “On average, what percentage of your payrolls is first time right (FTR) approved?” I truly appreciate the engagement and here are the results:

1. 58%: FTR of 75 - 100%
2. 21%: FTR of 50 - 75%
3. 15%: FTR of 0 - 50%
4. 6%: I do not track this

This result is encouraging and disheartening at the same time. While the majority indicates that their payroll results are approved on the first run at least 3 out of 4 times, there are still many that reject half or more of the payroll results on the first run. And some do not even track this very important KPI. We should aim for 100% FTR. I always tracked FTR with my teams, and was reasonably happy if I hit 80% FTR, but there were certainly months where I (especially on a regional, periodic basis) hit below 50% which was fairly frustrating to be honest.

There is more than meets the eye

Let’s first attempt to define what “first time right” actually means. As I like to make complex topics simple, I have always defined FTR as an approval of the first payroll results presented for validation. This is the same for an in-house and outsourced payroll. If there are simulation runs before that, that’s fine and I would not count them in the FTR rate. However, if these simulation runs generate lots of actionable errors I would encourage this to be logged on an overall error list for continuous improvement.

Before we delve into what goes into a validation process leading up to approval or rejection, let’s first set some context of FTR as part of the payroll calendar.

The pressure of the calendar

Designing and implementing a global payroll calendar is a true work of art. You need to balance many stakeholders needs, for example when focusing on outsourced payrolls:

• HR: Manage the internal cut-offs to which changes are processed in the current period. This will include all aspects of HR, but also other “inputters” into payroll (e.g. Commissions, Equity, Benefit Providers).
• Payroll providers: Incorporate the Service Level Agreements (SLAs) of processing times from submission to payroll results, including a return revised results window in case of rejection. This also leads to the payroll submission date, which comes shortly after the internal cut-off - provided the process is digitised and automated.
• Employees: Payments are made according to the agreed terms in employment contracts and in line with local rules and regulations.
• Accounting: When the books close, payroll must provide the journal entries needed so that they can be reconciled and analysed for fluxes.

Now, to bring this back to the context of FTR payrolls. Just imagine that you receive payroll results on a Thursday late afternoon, and the next Wednesday you need to pay employees. The following Thursday, the journal entries need to be provided to Accounting. Oh and yes, the team performing the reviews are in EST while the provider works CET hours.

You and your team have performed reviews based on the validated G2N with other controls, such as scenario based payslips reconciliation, input versus output reconciliations, variance controls and threshold controls. Your team has found these errors in a 1.000 headcount payroll:

• One commission amount is submitted incorrectly, too little will be paid.
• One equity transaction is processed incorrectly, leading to negative pay.
• New pay elements have been mapped incorrectly to global mapping and GLs.

Your team asks you the question: will we approve and correct this the next run, or will we reject this payroll as we have a little bit of time? Welcome to the job of a (global) payroll manager.

You found errors, now what?

If you worked in (Global) Payroll you will recognise and appreciate the stress and complicated level of decision making when in this situation: it’s not that straightforward. To decide, I always asked myself this series of questions:

• Are the errors severe enough for the entire payroll to be rejected?
• Which employees are impacted? 
• Do I still have sufficient time to get payroll results back, to not jeopardise payments, filings and journal entries?
• Can I single out these employees from the payment file, not risk all and make those manual, urgent payments?
• How severe is the mapping issue in terms of reporting, and can this also be corrected after payroll approval as it doesn’t impact pay?
• Which country is it and how good is the local payroll provider?

I discussed the questions within the team involved to make them part of decision making. ‘One team, one goal’ kind of mentality, with the nuance that the decision was always my accountability.

Whatever you decide, make sure you communicate clearly. I always provided detailed feedback with the team to the payroll providers in terms of rejection reasons, including what we would do to make sure it doesn’t happen again. And what we expect the provider to do, depending on the issue. Of course, as a best practice you would want to log these rejection reasons for any further review and overall metric and KPI calculation.

When the heat of the payroll cycle is over you can reflect with the team on all that has happened this time. You pull up the metrics, KPIs around FTR and drill deep into the log. What’s great about this, is that it creates a culture of trust and openness - not blame and shame. We all make mistakes (myself certainly included), which is fine, however we should always strive to learn from them.

The Payroll Provider perspective

Up until now, I have been writing from the perspective of a Global Payroll Team, but another really interesting and important view is that of a payroll provider. For instance, the provider has no way of validating a submitted commission amount. Aside from reasonability checks (i.e. if a commission is 100x base pay, you would want a confirmation that this is actually correct), you would normally just process the amount.  Some (slightly paraphrased, but related) comments by payroll providers on my LinkedIn poll that are worth mentioning:

• “Define RIGHT, as based on the data we received we have a 100% accuracy rate. Are last minute changes after the initial submission and after payroll was returned to be reviewed considered wrong or right? The delivered data is usually not clean either”.

This is an interesting perspective. This assumes that the payroll provider always delivers payroll results that are 100% accurate. While I would love to believe that, based on my experience and despite all efforts from payroll providers, this is simply not achievable. But there is truth in what is shared here in that how we rate FTR differs. If you are a payroll provider and you have processed the data you have received 100% accurate, I’d argue that is FTR despite it being rejected by a client error or incomplete submission. 

Still, as a provider there should not be a “rubbish in, rubbish out” approach. Partner with the client to emphasise the need for clean, high-quality data and highlight local compliance nuances. So while measuring your own performance based on an “I processed it all correct FTR” is solid, you would excel in also measuring rejection reasons as a provider to help educate internal processes and client processes. This is confirmed by a provider comment on the poll:

• “The not FTRs are most interesting to analyse, we have built our own platform for payroll changes, then we can see where we can help both ourselves the provider, and the client, to have better input (via automated validations, for example) which definitely bring the FTR% up and also give us a better workload.”

So, what now?

Great question, if I do say so myself. You need to have the flexibility to contact your local payroll provider directly, as you have built up an intimate working relationship with them. Stress the urgency of a quick turnaround of revised results, and an explanation of how. Partnerting, not simply outsourcing, is what I like to call this. 

You need a platform that automatically tracks KPIs (like FTR), allows for instance payroll processing control execution (to turnaround complete and accurate review) and strive relentlessly for 100% FTR. The ‘you’ in this context, refers to both Global Payroll Teams and (local) payroll providers.

I am a Global Payroll Professional, and a passionate one too! After managing global payrolls across the world for about 20 years, I found there must be a better way of doing this. I joined Payzaar - the global payroll management platform everyone needs and can easily implement.

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