How To Improve Business Efficiency and Grow Your Company

Looking to maximize resources and get more out of your existing team? Streamlining HR and payroll operations is one of the most effective ways to do it. When you know how to improve business efficiency, your company saves time, reduces errors, and gives employees and customers better experiences.

When inefficiencies exist, productivity can suffer, creating a ripple effect throughout the organization. This article offers more than advice for saving a few hours each week. It can help you improve efficiency and build scalable systems that support business growth.

Definition of Business Efficiency

Business efficiency measures how well a business can convert the required time, effort, materials, and capital in relation to its output. Output can be products, services, revenue, or however the business measures its parameters of success. But efficiency isn’t just a performance metric — it can be a survival metric. When you have small teams and limited budgets, every hour and dollar has to work harder.

For a simplified example of efficiency in business, consider two companies with the same headcount and payroll budget. One uses integrated HR and payroll systems that reduce manual work and errors, while the other spends hours each week managing inputs and formulas in spreadsheets. The first company operates at a higher efficiency because it gets more done without the need to hire more people.

Efficiency vs. Effectiveness in Business

Efficiency is not the same as effectiveness, and the two terms often cause confusion. Efficiency focuses on how work gets done. Effectiveness is about what work gets done. A common way to think of effectiveness vs. efficiency is:

• Efficiency is about doing things right. Getting more done with fewer resources.
• Effectiveness is about doing the right things. Focusing on actions that support the right goals.

It's possible to have an inefficient process with an effective result or an efficient process that is less effective.

As an example, consider two salespeople, Jamie and Logan. Jamie uses scripts and strict time limits to make 100 calls a day. Logan invests their time in developing a hyper-qualified list of prospects and researching each contact, making only 20 calls a day. Jamie closes 3% of their calls, while Logan enjoys a 25% closing rate. Logan’s approach takes longer but also produces better results and stronger customer relationships, likely leading to a more positive overall experience and a favorable impression of the business.

Efficiency and effectiveness are not mutually exclusive. Ideally, a business figures out how to balance both — creating smart systems while achieving the right outcomes for operational effectiveness.

Types of Efficiency in Business

There are numerous ways that a business can demonstrate efficiency. Measuring business outputs against the resources required to reach your goals helps you identify where you can improve your systems and make better use of your overall resources — time, money, labor, effort, materials, and capital.

• HR and Payroll Efficiency: Many small and midsize businesses spend a lot of their time on HR and payroll tasks. Tracking KPIs like payroll cycle time, time-to-onboard, error rate, and cost-to-serve can uncover where automation or analytics could help. Look for platforms that connect timekeeping, benefits, and payroll in one place. Solutions like Paychex handle this integration, which frees up your HR team to focus on higher-value work instead of juggling multiple systems.
• Labor Productivity: This measures how much your workers are able to produce or accomplish during a set period of time. Equipment, training, and technology all affect output, but so do employee mental health and engagement. HR analytics can track trends and pinpoint where better tools or support could improve overall productivity.
• Operations Efficiency: Operations are critical to a business model, and efficiencies in these core processes can help reduce overall costs. Business operations efficiency can be found in strategies like technology integrations and outsourcing payroll or benefits administration.
• Process Efficiency: Every area of a business has repeatable steps — internal communications, HR, shipping, and even how meetings are conducted. Review these processes regularly to look for modifications that may also increase efficiencies in other areas. For instance, digitizing paperwork or using e-signatures can cut down approval time, while packaging products with less material can lower energy and shipping costs.
• Eco-Efficiency: Eco-efficiency refers to how efficiently your business operations minimize environmental impact while maintaining economic performance. An eco-efficient company excels at reducing waste — such as by using recycled materials or cutting packaging costs — to lessen the environmental impact of its operations. These calculations can be tricky. For instance, using post-consumer recycled plastics for packaging or materials can raise up-front costs but increase eco-efficiency. It may also attract customers who prioritize businesses with a low environmental impact.
• Energy Efficiency: Reducing the amount of energy consumed to run your business is an important sustainable practice that can increase your bottom line. Your energy footprint is the amount of energy used across all aspects of business operations, from lighting and equipment to shipping costs. Reducing these numbers can save you money.
• Return on Investment (ROI): An investment is typically a current cost that is used for future gain. This can be any metric — an increased pool of qualified applicants, fewer payroll errors, or faster onboarding are all good examples. Measuring the ROI helps you see which initiatives truly pay off.

Benefits of Efficiency in Business

No one enjoys wasting time or money. Aside from the general satisfaction that comes with running a thriving business, many business efficiency benefits go beyond saving resources, such as:

• Reducing Costs: Whatever your metric for calculating efficiency is, improving it will likely yield cost savings. Streamlining time-consuming HR or payroll tasks, improving workflows, and automating repetitive work can improve your bottom line.
• Increasing Profits: The flip side of reducing costs is increasing profits. Figuring out how to get more products in the hands of your customers without increasing labor or expenses translates into a more profitable business.
• Growing Your Business: Less time spent on mundane administrative tasks can free up staff to develop strategies for business growth. For example, improving eco-efficiencies can give staff a sense of purpose and dedication, unleashing the engagement and creativity you need to move into new markets; developing new ways of packaging or operating can set your business apart as an industry leader.
• Improving Employee Morale: Eliminating bottlenecks can save employees' time and energy. Done well, this can be seen as a form of respect. Actions such as reducing the number of mandatory meetings or giving staff on-demand access to their benefits accounts can strengthen their sense of loyalty to your business, thus improving engagement and reducing employee attrition and turnover.

Ways To Improve Business Efficiency

Efficient business practices are less about what you do and more about how you do it. Business owners and employees often wear many hats, and business process improvement can only get you so far. Often, the best way to improve business efficiency is to realize that no one person can do everything on their own. Outsourcing is one of the top business leaders’ priorities in 2025, but adding small business AI to workflows is becoming an increasingly common small business trend to streamline business processes. Below are a few practical ways to help maximize your resources.

Automate Payroll and Tax Filing

Manual payroll processing can consume hours per pay period for small businesses. With your team calculating deductions, approving checks, and filing tax forms, it’s not unusual to see errors. Those mistakes can lead to penalties, employee frustration, and lost time spent correcting the issue.

Payroll automation can change this entirely. Automations process calculations, tax withholdings, and filing requirements, dropping time commitments to under one hour per pay period. It has built-in processes to catch errors before they become problems and can help you spot trends in overtime or labor costs faster.

To measure the efficiency gains of payroll services, track your time spent per pay period, error rates, and penalty costs. For example, a typical 50-employee company that spends eight hours per pay period (208 hours annually) on payroll, labor can cost $7,280 (at $35 per hour). Add in another $1,000 in average annual penalties, and you get a yearly total of $8,280. If automation reduces processing time to 45 minutes per pay period (19.5 hours annually), that brings labor costs down to $683. Penalties can be reduced significantly or even eliminated entirely. The savings you get are more than $7,500, not to mention the 188.5 hours you put back into your year, for an ROI of 280%.

Streamline Onboarding and Time & Attendance

Onboarding a new employee can span numerous days, creating a bottleneck while employees wait for HR staff to sign and verify the forms before entering the data into the system. Once the information is updated and your new team member starts working, paper time sheets consume even more time each week as managers review, correct, and reconcile time and attendance entries before each payroll run.

Companies using traditional time cards are more likely to experience higher error rates, leading to overpayments, underpayments, and compliance issues. This creates a cycle where your team spends valuable time on administrative tasks instead of strategic work. In contrast, companies that adopt a digital system can significantly reduce onboarding and time reconciliation efforts — while also minimizing errors.

Automate Benefits Administration

Open enrollment season occurs once a year, but the administrative burden can span weeks. HR teams spend hours answering the same questions, correcting form errors, and manually entering (and updating) employee elections. Benefits administration mistakes can cause coverage gaps, billing issues, and frustrated employees who thought they'd enrolled in dental coverage only to discover months later that the paperwork never went through.

Outside of open enrollment, HR staff still spend time answering employee benefits questions as employees try to understand their coverage, make midyear changes, or access their information.

Automated benefits administration platforms shift this work from HR to employees through self-service portals. Benefits self-service is a feature offered by 80% of employers, according to the 2024 Getting Paid In America survey by PayrollOrg. If your company isn’t among them, it’s falling behind industry standards, and your employees notice.

Elevate Compliance as Efficiency Driver

Compliance automation helps transform efficiency by monitoring requirements across every location where you operate, giving your team 24/7 alerts when changes affect your business.

There’s also the hidden cost of time spent on researching regulatory changes, updating tax rates, and confirming filing deadlines for different jurisdictions. Especially for businesses with multistate operations, compliance automation isn't just about avoiding penalties — it's about reclaiming the time your team currently spends tracking regulatory updates so they can focus on work that actually moves the business forward.

Leverage Analytics for Data-Driven Decisions

It’s common for businesses to spend time pulling data from multiple systems, updating spreadsheets, and analyzing trends. By looking at workforce analytics after the fact, you end up reacting to issues that have already had an impact on your business.

Real-time HR analytics helps get rid of the lag. It offers data-driven HR capabilities and predictive analytics with instant visibility into recruiting pipelines, time and attendance patterns, benefits utilization, and payroll costs. Using predictive analytics and AI-powered tools can also give you an advantage. Consider Paychex Recruiting Copilot, in partnership with Findem, which identifies top talent, so you can start interviews more quickly.

Consider Strategic Outsourcing for Maximum Efficiency

Automation can handle most HR and payroll efficiency gains, but there’s a point where outsourcing becomes the smarter option. Consider offloading tasks when your employee count keeps growing, when HR administration consumes excessive hours, or when compliance across multiple states overwhelms your capacity. A Professional Employer Organization (PEO) is an outsourcing option that helps manage payroll, benefits, and other administration, giving you more time to focus on running your business.

Other practical ways to strengthen business efficiency include:

• Use Free Resources: There are many valuable free resources for businesses that you can turn to when you need them. National organizations such as the U.S. Small Business Administration and SCORE provide advice and resources that offer guidance on startup issues, tax concerns, and, in some cases, even legal matters.
• Invest in Quality Branding: Having a cohesive brand is invaluable in presenting a clear message to your customers, vendors, key stakeholders, and the public. All aspects of your branding — from your company logo to your website layout and product offerings — must be consistent with the message you want to send to your target audiences.
• Think From Your Customers' Perspectives: Ask yourself, “How would customers say we could improve?” What seems obvious to you may not be clear to them. Review your sales and marketing materials through their eyes and seek outside opinions to avoid bias.

Improving Efficiency on a Personal Level Can Help Improve Efficiency on a Business Level

It's not just your business that stands to benefit from greater efficiency. Work efficiency improvement from managers and business leaders creates a ripple effect — your personal efficiency becomes the model for how your organization operates.

Every business owner and leader can improve productivity with time management tactics that include:

• Setting the Right Goals: Break big goals into smaller, manageable steps to stay focused and make progress.
• Completing One Task at a Time: Avoid multitasking — focus on one task at a time to reduce wasted effort.
• Prioritizing: Rank tasks by importance and tackle high-priority items first. If something can be done quickly, do it immediately
• Managing Time: Work during your peak focus hours on demanding tasks. Try 50-minute work blocks with short breaks for better concentration.
• Reducing Distraction and Silencing Notifications: Schedule email and phone checks instead of reacting instantly. Silence notifications during focused work sessions.
• Measuring Personal Metrics: Track hours saved, time spent on strategic work, and completion of top priorities. Data shows where your time really goes.
• Utilizing Technology and Automation: Use tools that automate repetitive tasks to free up time for strategic work.

Knowing how to improve business efficiency helps everyone in the organization. As part of the process, learn more about how you can help your employees increase efficiency by using more effective employee goal setting to increase productivity and engagement.

How Do You Measure Efficiency in a Business?

Just as there are different types of efficiency in business, there are many ways to measure them. Some business efficiency metrics are applicable across the board. Benchmarking your metrics is critical so you can evaluate your progress over time. Comparing your business efficiency KPIs with similar businesses or industries is another important way to assess whether your business is on target.

There are different strategies to measure business efficiency.

• Inventory Turnover or Lag Time: For product-based companies, measure how quickly inventory moves from the warehouse to customers. This indicates whether products are selling and meeting demand.
• Efficiency Ratios: These show short-term performance and reveal how long it takes to turn inventory into cash.
• Measuring Eco-Efficiency: This involves comparing net sales and goods produced/sold against resource use (energy, materials, water) and environmental impact (greenhouse gas and ozone-depleting emissions). The World Business Council for Sustainable Development issued a guide to help businesses measure eco-efficiency and company performance.

The Role of Analytics in Improving Business Strategy

HR is another operation where business efficiency can have a big impact. Specifically, the process of employee recruitment and retention is simply too important to leave to chance. HR analytics can provide human resources departments with better data collection, reporting, and the insights needed to make data-driven decisions.

Whether a business unit manager needs the latest information on time and attendance to streamline their scheduling process, or a quick payroll audit by the HR manager to address a problem, analytics help make data accessible to business leaders. AI analytics tools take this further by spotting patterns and predicting trends you might miss in traditional reports.

Here are some ways to leverage workforce analytics and improve the way you run your business, and increase efficiency:

• Recruiting: When a job candidate is brought on board but ends up not being right for the position, turnover can happen, and filling open positions becomes expensive and time-consuming. Recruiting analytics lets you see where your best candidates come from and which profiles tend to succeed more often over the long term. In addition, AI-assisted hiring tools like Paychex Recruiting Copilot match you with potential candidates and deliver their profiles directly to you.
• Time and Attendance: With time and attendance analytics, companies can determine the most efficient patterns in employee scheduling to strategically manage the scheduling process, stay in compliance with company and legal requirements, and even identify patterns of absenteeism that could indicate issues at the individual or department level.
• Benefits and Other Services: HR data analytics can streamline the management of employee benefits and other services within human resources. Consider the reporting needed during open enrollment. An analytics-driven reporting system makes it easy to see who is enrolled and where decisions are pending. Analytics can also help HR managers understand which benefits are being used and which ones are being overlooked.

Common Payroll Mistakes That Can Lead to Errors and Business Inefficiencies

Payroll processing is a particular company operation where accuracy and efficiency matter. Not only do businesses have to pay employees timely and accurately, but they must also submit taxes to federal, state, and local authorities at specified times and in designated forms. Such demands require time-consuming administrative efforts, which, if mishandled, can lead to costly penalties. Some of the most common payroll errors include:

• Filing Late With the IRS: The IRS stipulates specific due dates for depositing taxes and filing returns. Tax filing errors, like late deposits and late filing of payroll tax returns, can result in penalties and interest charges.
• Errors on Tax Forms: Errors made on tax forms may make it appear that you have remitted too much or too little in payroll taxes. Such payroll mistakes can also impact reconciliation with other tax forms, such as W-2s.
• Misclassifying Workers: Ensure each worker is correctly classified as an employee or an independent contractor, and employees as exempt or non-exempt. Worker misclassification can result in retroactive payroll tax liabilities as well as fines and penalties.
• Processing Payroll Late or Not at All: Late or inaccurate payroll processing not only creates unhappy workers, but it may result in fines and penalties depending on the jurisdiction, as well as issues like missed premiums or late retirement plan contributions, which can take additional resources to rectify.
• Paying the Wrong Amount: Incorrect data entered into a payroll database can result in problems connected to paying employees at the right rate of pay and for all hours worked. Corrections can be time-consuming and can wreak havoc on your bottom line.
• Not Maintaining Adequate Payroll Records: State and federal regulations mandate businesses keep specific employee records. Some local and state jurisdictions may vary in their record-keeping requirements, so employers must be familiar with such payroll compliance requirements in the location(s) in which they do business.

Outsourcing Payroll Leads to Productivity Improvements

Outsourcing payroll processing with a payroll service provider is a solution to both enhancing efficiency and helping to reduce your risk of the payroll processing mistakes described above. Payroll outsourcing has benefits such as:

• More Time for Business Priorities: Payroll processing is time-consuming. Outsourcing reduces administrative burden and helps you stay compliant, freeing time for strategic work.
• Protect Employee Data: Payroll involves sensitive information and risks like identity theft or embezzlement. Trusted providers use strong security controls, backups, and multiple servers to prevent breaches.
• Stay Compliant with Tax and Employment Laws: Keeping up with federal, state, and local regulations is critical. Payroll vendors specialize in compliance to help avoid costly penalties.

Outsourcing HR Functions Boosts Efficiency

Outsourcing HR functions can result in a significant improvement in business efficiency. A skilled HR outsourcing company can help you mitigate the risk of non-compliance with current reporting and filing requirements, as well as assisting with the development of worksite safety programs and insurance benefits.

More small businesses are investigating the merits of entering an arrangement with a PEO, which enables business owners to outsource the administration of employee benefits and related HR solutions, including help with these key tasks:

• Creating an employee handbook
• Building job descriptions
• Assisting with monitoring regulatory and legal compliance developments
• Maintaining Affordable Care Act documentation
• Providing comprehensive online HR resources
• Offering on-site employee training
• Helping with risk assessment
• Providing expert HR advice

Outsourcing other key processes — such as marketing, website maintenance, and social media activity — is worth looking into as well. The more you can outsource to a reliable service or company, the more time you gain to concentrate on what will contribute to the growth of your business.

A More Efficient Business Can Help You Succeed

Employers who look to maximize their resources and execute business functions to improve operational efficiency can position themselves to enjoy the advantages that come from doing so. Those who don't are missing a key competitive advantage and gambling with a future that can render their business obsolete.