How PayShepherd Calculates Cost Savings

Calculation Methodology

Cost savings are determined by the delta between the initial contractor entries into PayShepherd and the final amount charged after engaging with the platform's anomaly engine. Cost Savings are evidenced by transactions that are adjusted, voided, withdrawn, and other confirmed cost savings based on PayShepherd’s anomaly detection or engagement with the client success & support teams. These changes are logged in PayShepherd’s audit trail via the void logs, adjustment logs and support communication records.

Definitions

Adjusted – When the contractor, in the PayShepherd platform, reduces part of the transaction value in response to an anomaly or request from a client representative.

Voided – When the contractor, in the PayShepherd platform, removes or credits the transaction value in its entirety in response to an anomaly or request from a client representative.
 
Withdrawn – When the contractor opts not to charge for elements after engaging with PayShepherd Support or the Success team.

Other Confirmed Cost Savings – When a contractor modifies or eliminates a long-standing informal agreement that was not contractually defined after engaging with the PayShepherd product or team, resulting in cost savings moving forward. The value is determined by calculating the present value of future cost leakage that would have persisted without intervention(see examples 7, 8 & 14).

Real-world examples from PayShepherd's client base

1. Duplicate Material Charge (Voided)
A contractor attempted to charge a third-party invoice for material for a second time in error. After being blocked in PayShepherd and presented with an anomaly message, the contractor voided the request before submitting it to the client. The value of this voided transaction becomes cost savings and can be evidenced by the void and adjustment audit log in PayShepherd.

2. Excessive Work Hours (Adjusted)
A contractor attempted to charge a worker for 24 hours in one day in error. After being blocked in PayShepherd and presented with an anomaly message, they adjusted the request to 12 hours before submitting it to the Client representative for approval. The value of this adjusted transaction becomes cost savings and can be evidenced by the void and adjustment audit log in PayShepherd.

3. Unapproved Equipment Charge (Withdrawn)
A contractor attempted to charge for a piece of equipment that does not appear in PayShepherd as a billable rate. After reaching out to the PayShepherd support desk, the contractor realized that they did not have this equipment and the associated equipment rate approved by the Client. As a result, the contractor decided not to charge the Client for the equipment moving forward. The value of this withdrawn transaction becomes cost savings and can be evidenced by the communication log with the support desk team at PayShepherd.

Many more examples can be found below, enjoy!

Other considerations

Anomaly Detection & Enforcement
PayShepherd detects and flags anomalies across labor, equipment, materials, and subcontractor charges, providing contractors with visibility into potential errors before submission. In some cases, a contractor may proceed with an anomalous transaction by providing a justification. If the justification is insufficient, or if a client representative opts to bulk approve multiple anomalies without review, PayShepherd still attributes cost savings to these instances.

While the final decision to approve or reject flagged transactions remains at the client’s discretion, PayShepherd calculates the potential savings that could have been realized had the anomalies been adjusted or voided. This ensures transparency in how cost-saving opportunities are surfaced, even if the financial impact is not fully realized. When presented with the value report, PayShepherd separates these two categories for full transparency.

Preventing Rate Overcharges
In the traditional manual timesheet review process, a significant area of cost leakage is the application of contractual rates by contractors. Across the industry, this typically leads to a cost leakage between 3% and 6% of the contract value (e.g., a boilermaker being charged at $150 per hour when the agreement was set at $130 per hour). The PayShepherd platform eliminates this risk entirely, ensuring that only pre-approved and negotiated rates can be charged to the Client. As these transactions will not be captured in an adjustment log, PayShepherd assigns a conservative value of 2% of the transaction value to this cost savings category in order to capture this cost savings for the Client.

Ongoing Cost Savings Identification
The value and efficiency gained from deploying PayShepherd and engaging with the PayShepherd team extend beyond those outlined in this section. PayShepherd will work with the Client to surface and confirm cost savings as it is identified and realized, reinforcing the Client’s decision to implement the PayShepherd platform.

In/Out Transactions Are Not Considered in Cost Savings Calculations
Contractors sometimes upload an entire day’s worth of timesheets in bulk and later realize they omitted a value, misstructured the data, or formatted a column incorrectly. In such cases, they may perform a mass void of the entire upload before resubmitting corrected data. These bulk voids are not included in PayShepherd’s cost savings calculations, as they do not represent an actual cost avoidance or adjustment. They are identifiable by tracking bulk uploads followed by corresponding bulk deletions.

Data-Driven Insights
At the end of each agreed-upon period—whether semi-annually or annually—the PayShepherd Client Success team invests significant effort in aggregating and presenting a clear, compelling view of the cost savings realized through the platform. While the full audit log contains a broader savings total, we focus on curating impactful examples across multiple cost savings categories and contractors, providing a digestible and actionable summary for client review. Occasionally, clients prefer to conduct a deeper analysis of the audit logs, involving multiple stakeholders to explore continued process improvements. While PayShepherd supports this approach, it requires considerable effort on both sides—clients must familiarize themselves with the data structure, and our team is required to provide extensive guidance to facilitate understanding. Given the complexity, this level of support is available upon request at an hourly rate, negotiated as needed.

Appendix: Additional real-world examples

4. Crew Time Correction (Adjusted)
A contractor attempted to charge a crew of 10 workers for 12 hours each in one day in error. After being blocked in PayShepherd and presented with an anomaly message thanks to an integration with the site access system, they realized the entire crew should have only been charged for 10 hours. The contractor made the appropriate adjustments (2 hours per day, per worker) before submitting them to the Client representative for approval. The value of these adjusted transactions becomes cost savings and can be evidenced by the void and adjustment audit log in PayShepherd.

5. Equipment Usage Alignment (Adjusted)
A contractor attempted to charge a large crane for 12 hours in one day when the associated crane operator was only on site for 8 hours. After being blocked in PayShepherd and presented with an anomaly message, the contractor made the appropriate adjustments (4-hour reduction for the crane) before submitting them to the Client representative for approval. The value of the adjusted transaction becomes cost savings and can be evidenced by the void and adjustment audit log in PayShepherd.

6. Markup Compliance (Adjusted)
A contractor attempted to charge a third-party invoice for material with a 20% markup in error. After being blocked in PayShepherd and presented with an anomaly message, they reduced the markup to 10% (per the contract) prior to submitting it to the Client representative for approval. The value of this adjusted transaction becomes cost savings and can be evidenced by the void and adjustment audit log in PayShepherd.

7. Travel Time Billing Correction (Other Confirmed Cost Savings)
For a long time, the client unknowingly paid for a contractor’s workforce to travel 40 minutes daily (20 minutes each way) to the site, incurring unnecessary overtime costs. Upon implementing PayShepherd, this recurring expense was immediately flagged. The client traced the informal agreement’s origins, confirmed it was misaligned with the local union agreement, and renegotiated terms, shifting transportation responsibility to the workers and eliminating substantial overtime costs. To fairly capture this correction, PayShepherd and the client agreed to calculate the present value of one year’s savings, recognizing that without intervention, the cost would have persisted indefinitely.

8. Small Tools & Consumables Cost Recovery (Other Confirmed Cost Savings)
At a contractor’s renewal date, the PayShepherd platform and team identified that the client was routinely paying for small tools and consumables—items valued under $2,000, such as pumps, hoists, drills, wrenches, etc. Across the industry, these costs are typically included in a worker’s hourly rate rather than billed separately. By surfacing a list in plain language for the client’s procurement team, PayShepherd enabled them to renegotiate terms—not just with a single contractor but across all contractors. This resulted in long-term cost savings by clearly defining small tools and consumables in contracts moving forward. To capture the impact, PayShepherd and the client agreed to attribute a year’s worth of cost savings as the present value. The client directly attributed these savings to PayShepherd’s industry expertise.

9. Worker Misclassification Correction (Adjusted Value)
A laborer was brought on-site at a $35/hour rate. However, after two weeks on the job, the worker was mistakenly reclassified as a Project Manager at $145/hour—a nearly quadruple rate increase. PayShepherd’s anomaly detection flagged the classification jump and alerted the contractor before the incorrect rate could continue accumulating unnoticed. Upon review, the contractor immediately corrected the classification, ensuring the client avoided unnecessary overbilling and preventing further inflated charges moving forward.

10. Audit Waiver for Insurance Claim (Other Confirmed Cost Savings)
After a boiler explosion, the client’s insurance provider covered the multi-million-dollar replacement cost. The insurer appointed the facility as project manager and stated that a post-project audit would be required to review approved timesheets and invoices for discrepancies and overpayments. The cost of this audit was to be borne by the client. However, upon learning that PayShepherd was in place, the insurance company waived the audit requirement, recognizing the platform’s ability to ensure billing accuracy throughout the project. This decision resulted in cost savings for the client between $50,000 and $100,000 in audit costs, while reinforcing PayShepherd’s role in driving financial accountability and transparency.

11. Hydrovac Callout Minimum Correction (Adjusted Value)
A contractor had negotiated a four-hour minimum callout for a hydrovac service. On one occasion, the hydrovac crew was on site for a total of three hours, during which they worked on four separate jobs. Instead of billing a single four-hour minimum for their time on site, the contractor billed four separate four-hour minimum callouts, resulting in a 16-hour charge for just three hours of work. Before PayShepherd, this type of overbilling would have gone unnoticed. However, the anomaly detection flagged the discrepancy, prompting a discussion between the client and contractor. As a result, the client refused the excess charges and corrected the billing practice going forward, ensuring fairer invoicing and preventing similar cost overruns in the future.

12. Indirect Office Support Cost Recovery (Other Confirmed Cost Savings)
For years, a contractor had been billing the client for indirect office support costs, an expense that traditionally falls under contractor overhead rather than a billable charge. These charges repeatedly passed through the client’s review unnoticed. Upon implementing PayShepherd, the system flagged all offsite charges, surfacing these costs in plain language. This allowed the client to quickly recognize the issue, confirm that these expenses were not contractually valid, and renegotiate terms with the contractor. Moving forward, PayShepherd blocked these charges from being submitted, ensuring long-term cost savings and improved contract compliance.

13. Site Access Verification Correction (Adjusted Value)
A worker was billed for 11 hours plus an overtime meal allotment, but PayShepherd’s site access integration flagged that they had only been on-site for six hours, making them ineligible for both. The contractor adjusted the billable hours down and voided the meal charge as a result because the worker did not qualify for it, preventing overbilling. This single transaction correction resulted in two distinct cost savings for the client. The value of the adjusted and the voided elements of the transaction becomes cost savings and can be evidenced by the void and adjustment audit log in PayShepherd.

14. Optimized Rental Management (Other Confirmed Cost Savings)
Limited visibility into rental equipment across multiple suppliers [ex: generators, forklifts, office trailers] led to uncontrolled rates, mismanaged rental periods, and redundant costs. PayShepherd established a baseline spend and provided visibility into rental rates, on-site equipment, and optimal return periods, improving rental management without added administrative burden. Over time, PayShepherd’s rates and usage data enabled supplier consolidation, allowing the client to negotiate a single-source contract with volume-based rate reductions. The savings from improved rental returns and supplier consolidation, measured against the baseline, were captured as cost savings.