Payroll is a critical function and comprises different elements and involves different departments and stakeholders across the organization. Correctly integrating data and all these elements ensure payroll is processed accurately and employees are paid every month. Payroll needs data from multiple sources and assistance from different departments. Payroll needs to reconcile payroll data and verify the reliability of the payroll calculations to pay correct wages. In addition, it must ensure proper deductions and taxes are deposited for all employees to comply with laws and policies. As the process involves activities from both finance and HR departments, there is a revering debate on who should be responsible for managing payroll.
43% of respondents admitted that finance leads the payroll, and 24% stated that their organizations’ payroll reports to HR, according to the report. In contrast, another report indicated 57% of the respondent reports their payroll to HR and 29% to finance. Furthermore, the same report informed 49% of the respondents feel payroll should report to HR and 33% to finance. Also, a global benchmarking survey found that 38% were in favor of reporting payroll to HR, 36% to finance, 24% wanted shared services, and 2% to others.
Reviewing these studies reveals conflicting views- some favor payroll reporting to HR, whereas some argue payroll should come under finance. Others want payroll to be a shared service or enlisted under other departments.
Let us consider the different elements of the payroll and explore which department payroll should report:
Should payroll be reported to HR?
Employee experience has gained lots of attention these days, and more organizations are inclined to focus on EX. Reporting to HR will make payroll offer a better employee experience and likely focus on EX initiatives such as employee self-service, easy application, data access, payslips, financial and tax assistance, etc. The payroll processing software or payroll tools should be selected based on the reporting approach followed by the organization. Also, payroll involves different elements, and some can be better handled by finance, whereas some are better suited for HR.
HR
Confidential information
Payroll utilizes confidential information. Employee profile information, financial details, and other sensitive information are needed in processing payroll. In addition, employee recruitment, performance, promotion, exit, and records of all relevant activities to payroll are coming under the purview of HR. Therefore, it is ideal to assign payroll reporting to HR.
Keep track of employees.
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Also, employee movement or progression, whether lateral or vertical and employee recruitment and exit are needed to be considered in payroll. For example, VR or exit packages to be offered to an employee, changes in salary structure after employee movement, and wages for newly hired employees are processed by HR. As these fall under the scope of HR operation, it is natural for payroll to report to HR.
Employee-facing approach
HR professionals generally interact closely with employees other than their immediate supervisors and peers. For example, in small organizations, HR is responsible for taking care of employee requirements, and in most cases, payroll in these organizations is managed by HR professionals. Moreover, even specialized departments or teams are required to process payroll and conflicts or issues with wages.
Legal responsibilities
Payroll errors can result in legal issues, and organization needs to pay fines or may penalize in other ways. Also, payroll mistakes and salary issues can impact employee satisfaction significantly. The HR team handles employee queries and grievances. Also, the HR department may become the receiving end of the legal suits. Therefore, it makes sense to payroll reporting to the HR team.
Should payroll report to finance?
Now let us consider the aspects that make it more suitable to report to finance.
Many believe payroll better fits into finance as it is a financial activity. Also, the skills needed to manage payroll are similar to the financial and accounting tasks. These activities demand similar types of detail orientation, reporting, auditing, technology use, and emphasis on compliance and internal controls. Another significant skill is analytics. However, both HR and finance are trying to scale the maturity curve with analytics, like planning, budgeting, forecasting (finance), and workforce planning, people analytics (HR). There are other elements that make payroll better suited to report to finance:
Numbers and finances
Payroll involves computing different numbers and data. It is a complex process, and the logic depends on the benefits administration process. Moreover, tax and other deductions, validation, verification of the process, and variance calculations are performed in payroll, similar to the accounting processes. These similarities can be compelling reasons to make it align under finance.
Skills and expertise
Consider the following questions, what deductions are required, how to calculate incentives and allowances, and what other benefits and compensation need specific financial and legal expertise? Often staff from accounting and finance are equipped with this knowledge rather than HR. Therefore, finance is more capable of overseeing payroll than the HR department.
Relevance and responsibility
Employee data is generally controlled and managed by HR. accounting and finance are charged with managing and reconciling general ledger and financial transactions, including employee costs. Putting employee data and financials under HR violates the principle of internal controls and data security policies. Furthermore, employee wages are the largest contributor to employee costs. Therefore it is sensible to assign payroll reporting to finance.
Auditing the transactions
Assigning payroll under finance and accounting makes it easier for accounting personnel to audit payroll. Though, it also increases the risk of data loss as the same department handles all the data and master files. But it also makes payroll seamless.
Managing data access
Seamless management of payroll demands that your payroll processing software link the employee master file with employee data with payroll master and general ledger. Data should be transferred between systems, and users should be able to access and use data to perform functions like calculating salary components and pulling reports effortlessly. If centralized database stores all data, HR must get access to edit the employee details and payment schemes if the payroll is assigned under the finance and accounting department.
Wrap Up
Whether payroll should be assigned under finance or HR depends on the organizational size, structure, and operation. From the technological perspective, organizations that use integrated HR platforms often use the same system for finance and HR, or they can also implement a standalone payroll processing software. Access controls and managing data are essential for any payroll tool or application, whether part of a comprehensive solution or deployed separately. Team integration is essential for payroll, whether it is technology or other aspects.
Also, there are organizations where payroll neither reports to HR nor finance. There are instances where payroll directly reports to the CEO, shared services, or other departments. Furthermore, there are cases where HR reports to finance, or both reports to operations, shared services, CEO, or payroll tasks are split between HR and finance. Additionally, there may be different reporting structures.
Regardless of where payroll reports it should be accurate and efficient, and clear roles and responsibilities should be defined in documenting the operation. HR and payroll software can provide insights on payroll, employee costs, trends and predictions, and how to transform your organization. Therefore, the final call depends on your organization and what they intend to do with its people, technology, and data.
