Is Payroll a Function of HR or Finance?
Written by 3P Partners

Jan 10, 2023 | Blog, Education, Latest News | 0 comments

Employees are the lifeblood of any company, which makes employee retention a critical component of success, regardless of industry. A potential reversing of the current employee’s market will not render top talent inessential, nor will the increasing pervasiveness of technology.

Payroll Belongs Under Human Resources

Most of the factors that are tied to payroll are the responsibility of the HR department. Changes to pay and salaries, bonuses, working hours, benefits and deductions, onboarding, performance management, and pensions are all typically tracked and addressed by HR. In short, most payroll data originates from HR activities.

Employee Facing Function

Payroll is an employee facing function and therefore belongs under human resources. Questions, queries and complaints from staff will arise, and it will be HR that will be tasked with responding. As the human resources department will ultimately field such concerns, it makes no sense to keep payroll at arm’s length. It’s intuitive that those dealing with employee relations and answering the questions should be the ones administering payroll.

Payroll Confidentiality

When dealing with reams of employee information and data, confidentiality is of the greatest importance. From both an ethical and legal point of view it’s imperative that complete discretion is prioritized and HR is the best trained department in this regard. Confidentiality is part of the DNA of HR and, for this reason, they are best suited to handling payroll.

Legislation and Compliancey

Legislation is also a factor. Human resources are most familiar with the laws concerning payroll compliance, including medical, leave, and wage and hour laws. The tie-in to payroll is obvious, particularly in the State of California where laws are complex and ever changing. California’s wage and hour laws are among the toughest in the U.S., frequently going beyond national standards. As a result, companies in the state are tasked with meeting not one standard, but two. HR’s expertise in this area is yet another reason why they are best suited to oversee payroll.

Payroll Belongs Under Finance

Payroll is ultimately a matter of numbers and therefore should be trusted to the finance team. It’s a critical task and is typically the largest expense that a company has.¹ Getting it right is not only crucial for the company, but for the staff as well.

Payroll and Taxation Law

Payroll includes a range of legislation that is totally foreign to HR, such as tax. A mistake in this regard can have legal consequences for the organization.While HR departments may have certain members that possess expertise in this area, it’s unlikely that the department as a whole will be as qualified to understand tax law compliance as the finance department.

Audits and Financial Health

The finance department is the steward of a company’s economic health and should therefore be connected to the administration of its largest expense. Finance will be responsible for reporting and conducting regular audits, which will of course require access to payroll data. With this in mind, it makes sense for payroll to be a function of finance.

Payroll Systems

Payroll interfaces with systems that analyze and report on T&A, job costing, and SG&A that are generally outside of HR’s areas of expertise. HR in general does not have the technical or specialist skills to understand the requirements of a payroll system regarding its selection, setup and configuration, maintenance, reporting and how it interfaces with other financial and related systems.

Can Payroll be a Function of Both HR and Finance?

By now it’s apparent that both the HR and finance departments have relevant skill sets and mandates that equip them to contribute to a well-executed payroll. Could the best solution be a joint effort?
While this may be ideal, it’s easier said than done. Co-managing the task effectively will be a matter of prioritizing the three Cs: communication, co operation, and confidentiality. If these three factors are valued by each department, a strong joint effort is feasible.


Communications in particular will be a matter of infrastructure. A cloud-based approach that makes use of integrated payroll software will be a foundational component of success.

 

Reach out to our team for support in building your payroll team.

Cited Sources 
1 “Why Payroll Data Should Be a Big Priority for Small Business.” Workest, August 31, 2019. https://www.zenefits.com/workest/payroll-data-priority-small-businesses/.