For a considerable amount of time, people have discussed and debated the issue of where in the organizational structure of a firm payroll should be located. Payroll is managed differently depending on the company, with some placing responsibility for it with the Human Resources (HR) department, while others keep it within the jurisdiction of the Finance department. Because each method offers a unique set of benefits and drawbacks, it is crucial for HR directors to give serious consideration to the strategy that will work best for their firm.
According to the findings of the 2020 “Deloitte Global Payroll Benchmarking Survey,” businesses appear to have a variety of approaches to payroll. The Human Resources department handles payroll for around 38% of respondents, whereas the Finance department handles payroll for approximately 36%. In addition to that, twenty-four percent of respondents use a model of shared services. In order to make an educated choice, HR leaders need to assess these possibilities while taking into consideration the many different elements that might effect the operations of the firm.
The Case for Payroll in HR
The synergy with HR information systems (HRIS) software is one of the most persuasive arguments in favor of incorporating payroll within the HR department. When processing payroll, payroll personnel often require access to a vast amount of data that is normally stored within the HRIS software. For example, as part of the onboarding process, newly hired employees are required to file IRS Form W-4, which is used to calculate the amount of federal income tax that will be withheld from their paycheck. In addition to that, they offer paperwork that pertain to beneficiaries and healthcare benefits. This information is essential for the payroll department in order to appropriately compute deductions.
In addition, HR is frequently responsible for overseeing other areas that have a direct influence on employee remuneration. These aspects include employee contributions to benefits, equity compensation, administration of paid time off, terminations, compliance with cross-border payroll, salary changes, and bonus payments. Considering that HR currently handles the management of this data, integrating payroll with HR can help expedite processes and guarantee that data is accurate.
In addition to this, HR specialists have a solid understanding of the many labor laws as well as local, state, and federal regulations. Their experience in these areas helps guarantee that the compensation methods comply with the standards set by the industry as well as the regulatory obligations.
Nevertheless, one possible disadvantage is that the HR team may not have sufficient knowledge with payroll software and the processing of payroll. To solve this problem, companies should seriously consider employing a specialized payroll specialist who would report directly to the head of human resources. Another option is for them to outsource payroll management to third-party suppliers while continuing to exercise HR control.
The Case for Payroll in Finance
On the other hand, there are many who believe that the responsibility for payroll should be assigned to the department of Finance due to the fact that it is, at its core, a financial activity that has a substantial influence on the bottom line of the organization. When payroll is handled by the Finance department, that department obtains better control, which gives them the ability to monitor costs connected to labor and produce metrics based on payroll data, which enables them to make more educated financial decisions.
This strategy is especially effective in situations in which the HRIS of the company is successfully connected with the payroll software. Because of this connectivity, the data pertaining to employees is updated in the payroll system in a manner that is completely automated, removing the requirement that HR personnel manually input data for each payroll cycle.
Having said that, it is essential to keep in mind the characteristics of payroll data. The payroll system stores extremely sensitive personal information about employees. Employees in the finance department, despite their expertise in managing various financial concerns, may not have received training on how to properly safeguard sensitive data. In spite of the fact that they are normally discreet when it comes to concerns pertaining to salaries, it is possible that they lack the competence necessary to traverse complicated subjects like as the Family and Medical Leave Act or 401(k) loans.
The Case for Collaboration Between HR and Finance
When it comes to managing payroll, some companies choose to take a collaborative approach in recognition of the fact that both the HR and Finance departments have their own distinct advantages and disadvantages. Companies may better strike a balance between employee-centric concerns and financial goals by having HR and Finance collaborate on payroll matters in order to harness the experience of both departments and work together on payroll matters.
Through collaboration, Human Resources is able to combine their extensive knowledge of labor laws and regulations with the financial savvy of Finance. This can lead to decisions being made that are properly informed and beneficial to the firm as a whole. It is crucial, when Human Resources and Finance work together, to create clear roles and duties in order to eliminate any overlaps or misunderstandings that may arise.
It is a crucial choice that has far-reaching repercussions for a business to determine the appropriate location for the payroll department inside the company. Both the Human Resources (HR) and Finance (Finance) departments each have their own set of strengths and weaknesses. Therefore, those in charge of HR should do a detailed analysis of the unique requirements of their firm, taking into account aspects such as data integration, knowledge, and the characteristics of payroll-related information.
Whether HR, Finance, or a collaborative model winds up managing payroll, the most important thing is to guarantee that employees are paid correctly and on time while adhering to all applicable requirements. This is the case regardless of which department ultimately handles payroll. In the end, the decision should be one that is in line with the overarching objective of the business as well as its strategic goals, which will promote efficiency and employee happiness.