Payroll isn’t just a cost line, it’s a living, breathing expense that touches every part of a business; when it’s leaky, the effect is visible and subtle at the same time. According to research from UKG and KPMG, large employers can lose between 2% and 4% of labour spend to payroll leakage , amounts that translate into millions or even tens of millions for big firms. That’s the sort of hit that won’t show up as one dramatic event but will quietly erode margins and morale.

This problem has roots in simple things: manual entry mistakes, stale processes, system silos and the odd fraudulent claim. The upshot is that payroll teams, despite being close to the money, often don’t have the tools or influence to fix the leaks. For leaders, that means lost opportunity and a conversation worth having at the exec table.

Why metrics and visibility change the game

You can’t fix what you don’t measure. The report shows many organisations use automated comparison tools and track accuracy, yet only a minority measure first-time-right payroll or cost per payslip. Those two metrics are especially revealing: they show how often payroll is processed correctly first time and how much each payment actually costs to produce.

Start by tracking first-time-right rates and true processing cost, and put those numbers in dashboards accessible to finance and HR leaders. That gives you a fast view of where errors cluster , a particular country, a payroll run, or a type of pay element , and allows targeted fixes rather than sweeping, expensive overhauls.

People, process and the resourcing mismatch

Payroll teams are frequently small relative to their impact. The survey found many organisations run payroll with surprisingly lean teams; some have just a few dozen full-time payroll staff despite tens of thousands of employees globally. That mismatch creates backlogs, over-reliance on manual workarounds and inconsistent governance.

Fixes aren’t just about headcount. Clarify executive ownership so payroll sits alongside finance and talent in board-level thinking. Invest in training, standard operating procedures and internal audits to reduce ad-hoc fixes. And when you do add people, align their work to data-driven pain points instead of repeating tasks that automation can manage.

Automation and AI: promise, but cautious adoption

Leaders are bullish about AI’s potential to improve payroll accuracy and compliance, yet less than half currently use it for payroll functions. Concerns include data accuracy, integration gaps and lack of standardisation, valid worries when you’re dealing with people’s pay.

A pragmatic path is to start small: automate reconciliation tasks and exception handling first, then build toward AI that flags anomalies or predicts likely errors. Keep humans in the loop for sensitive decisions and communicate transparently with staff, since surveys show many workers are wary of AI handling payroll inquiries.

Preventing fraud and process breakdowns with today’s tools

Fraud and expense abuse are part of the leakage story, but modern controls can blunt both. Expense-management tools, role-based approvals and continuous auditing reduce opportunities for fraudulent payments while keeping legitimate claims flowing. Integrations between timekeeping, HR, and payroll systems are especially valuable; they cut reconciliation time and reduce mismatched data that breeds errors.

Operationally, run regular root-cause reviews after payroll cycles, automate comparison reports and set tolerance thresholds to trigger investigations. Those steps mean you catch small slips before they compound into multi-million-dollar trends.

What this means for CFOs and HR leaders

Treat payroll like a strategic asset. Reclaiming even a single percentage point of labour spend can free substantial funds for investments, bonuses or cost savings. Make payroll metrics visible at the executive level, invest in integration and automation pragmatically, and shore up governance so the team closest to pay has both the voice and tools to protect it.

It’s a small operational shift that can deliver real financial breathing room, and improve employee trust at the same time.

It’s a small change that can make every pay run safer and savings add up.