Should payroll be under Finance or Human Resources?

One of the biggest challenges that businesses have when it comes to payroll is deciding what department should be responsible for it. This is one of the first aspects you need to take into account when you are determining how to manage payroll at your business. After all, if you don’t have the right people handling payroll and all related matters, then it is not going to be dealt with efficiently.

So, with that being said, below, we are going to take a look at payroll in terms of being under both the Finance and Human Resources department. This will help you to get a better understanding of the way this should be handled at your company.

Payroll managed by HR department

Processing payroll is one of a number of different deliverables HR professionals are expected to handle. There are a number of different reasons why a lot of businesses believe that the best approach is to keep payroll under HR. Ultimately, these are the same reasons why people believe the likes of compensation and benefits, training and development, and recruitment should all be handled by HR as well.

This includes the following:

  • HR has the competency when it comes to labour laws relating to medical, leave, pay, and such like. This all forms a substantial amount of legislative payroll compliance. 
  • HR is best positioned to deal with payroll because of the fact that most of the payroll data come from activities undertaken by this department. This includes deductions, benefits, unpaid leave, promotions, terminations, recruitment, and such like.
  • HR primarily deals with matters concerning employees. Therefore, if an employee has a query about payroll, HR will be responsible for this.
  • Employee confidentiality is something that should be managed at HR level. This means that payroll would naturally reside with the Human Resources department.

Payroll managed by Finance department

As payroll involves finances, it may seem obvious to group this with all other accounting matters under the financial department. There are a lot of people that are advocates for this approach.

The reasons for this are as follows:

  • Payroll tends to be the biggest cost for the vast majority of businesses and organisations and, because of this, businesses will report to the finance department for monitoring purposes and budget reporting.
  • Another reason payroll is considered a finance job is because of the strong internal controls that are needed. Human Resources professionals are not typically aware of the stringent audit and legal processes that payroll must follow to be compliant. 
  • Financial experts can also be better placed as expert advisors because of the taxation issues that relate to payroll.
  • Running payroll is something that involves accounting knowledge and functions, which the finance department is responsible for. Examples of this include posting to general ledger and reconciliations, for instance.

So, what’s the best solution?

As you can see, there are benefits associated with both options. And, because there are benefits associated with both, this also means that there are a number of challenges associated with both too. For example, despite all of the pros associated with payroll falling under the Human Resources department, these professionals will not have the accounting and financial knowledge required, which can be a big barrier.

Of course, you can flip this the other way as well. While the financial department may have all of the technical knowledge, they do not handle employee issues and confidentiality, and so this could be a sticking point should an employee have a payroll-related issue.

When you take all of this into account, it is not hard to see why there are so many diverse opinions in pools and surveys. Ultimately, the answer is going to depend on the structure of your business or organisation. For example, if a third-party system is used to process your payroll, then the financial data should be accessible to the financial department on a frequent basis.

There is not as much need for finance to get involved, though, when a third-party vendor is in use. Moreover, you also need to consider whether not your employees are likely to have a lot of queries about payroll. If they are, this could be an argument for keeping it under the Human Resources department.

When you are attempting to design a business that avoids monetary risks and functions well, for example, avoiding the violation of HR rules and regulations, there are two clear things. The first is that you do not want individuals who do not have HR training interacting with employees whereby one incorrect word could result in a lawsuit. Equally, you do not want non-accountants in your accounting system. 

Because of all of this, it would seem evident that both departments need to work together to reach the perfect conclusion when it comes to payroll management at any business. You need to ensure that HR professionals handle all employee-facing matters whereas those in the financial department handle all of the accounting matters. This is the best way to ensure no problems arise because of those with the unrequired skills working on certain elements of payroll.

Therefore, your main barrier here is making sure that you establish a system whereby HR and the financial department can work well together. An effective collaboration platform will be at the core of this. You also need to make sure that everyone is aware of their roles and responsibilities too.

As you can see, there is a lot that needs to be considered when determining how payroll should be managed at your company. We hope that this guide has shed some light on the different benefits and challenges that are associated with both options. There is no denying that the best solution is to ensure there is effective communication between both departments. Collaboration is the key to success at modern businesses today, and this definitely applies when it comes to managing payroll.