Strategic forecasting: Using payroll data to inform financial decisions

April 22, 2025

George Yang

Forecasting is a critical exercise for all organizations that requires the use of quality information to make data-driven decisions. When it comes effectively forecasting, many financial decisions rely heavily on reviewing and interpreting payroll data. This data can be a game-changer when planning for the future of your organization.

With that in mind, I connected with Janet Koyanagi, CPA, CGA, currently a Vice President of Finance and Administration at Handtmann Canada Limited, to review the different ways payroll data can be an invaluable source of information when developing strategic plans for your organization.

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Produced with Google Notebook LM Using AI Narration

Labour cost projections
As a starting point, compensation data supports the annual budgeting process by indicating labour costs, both by revenue and department. This data allows for multiple scenarios to be explored to project labour costs in the future based on different opportunities or challenges that may come up, ranging from a hiring freeze requiring budgets cuts to rapid expansion to accommodate organizational growth.

Headcount planning
Payroll data provides up-to-date information about current staffing levels across different departments and whether these levels will accommodate the future needs of the organization. This can include revisiting staffing allocations from previous years, considering times of growth or decline, to understand whether your workforce needs to grow, shrink or continue at its current levels.

Overtime
Monitoring overtime costs can support a number of different strategic conversations for an organization. In some instances, excessive overtime can be an indicator of understaffing and may be used to justify additional headcount. However, if increased overtime is not necessarily correlating with increased revenue or output when compared to previous years, it might require an investigation into the rationale across different impacted departments.

” Payroll professionals can provide valuable data that provides a clear window into the state of the workforce in their organization ”

Benefit costs and trends
While benefit costs are provided at the group level, it is still helpful to analyze to increase understanding of your workforce, monitor specific plan options and ensure costs are staying reasonable. Steadily rising benefits might require a renegotiation of rates and potentially a move to a different supplier. In addition, a changing workforce might become evident through changes to the benefits that are being accessed and those that are not. This could include removing certain seldom-used benefits for cost savings or reallocating funds to create a more flexible benefits plan.

Employee turnover and recruitment
By monitoring recruiting costs and turnover, paired with employee feedback through performance reviews, satisfaction surveys and exit interviews, an organization can ensure that they are remaining competitive in their specific market and region. Trends may be limited to specific departments or the organization as a whole and can influence future projections that may or may not include increased compensation and recruitment costs.

Seasonal or cyclical variations
For certain organizations, payroll data such as seasonal or cyclical increases in staffing can be predictors of future needs. The costs associated with recruiting and staffing these temporary positions can be forecasted in greater detail with past years as a reference.

Performance-based pay and incentives
In many strategic planning exercises, organizations need to consider how performance-based pay and incentives may impact their overall workforce costs. By looking at how these allocations were distributed in previous years, organizations can predict future expenditures, as well as how revised organizational goals can be aligned with individual employee goals to justify these added payroll costs. Aligning these goals with greater precision also ensures that organizations are not overcommitting themselves in poor-performing years.

Vacation, sick days and leaves of absence
Use of vacation days, sick days and leaves of absence can be indicators of employee well-being and satisfaction in the workplace. While some variation may occur on a year-to-year basis, surging use of sick days and leaves of absence, or even underuse of vacation days, could signal a workforce that is burnt out and could be a precursor to future turnover.

Employee demographics
In recent years, an emphasis has been placed on managing various age demographics in the workplace, as five different generations are currently working side-by-side. Organizations can benefit from understanding how demographics are shifting within their own workforce and how to align employee engagement with the various motivators of these different audiences. While some individuals may be motivated solely by compensation increases and benefits aligned with their current life stage, others might see a greater value in increased flexibility in their workday, a commitment to professional learning and opportunities for upskilling.

When it comes to forecasting, there should be no doubt how integral payroll data is to the planning process. Payroll professionals can provide valuable data that provides a clear window into the state of the workforce in their organization. And organizations that understand this will find that they better understand their workforce needs, both now and into the future.

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