Payroll spans across both the HR and finance departments.  Recent surveys of payroll professionals show mixed opinions as to where this critical function should live in the organization. The payroll function has some numerical aspects that are clearly financial and some that involve dealing with employees on confidential and personal matters, which is what HR is trained to do.  So, where should it reside in the organization?

The answer depends on how your organization is structured.

If you have payroll processed by a third-party system, like ADP, then the financial data should be available to the finance department on a regular basis. With third-party vendors in use, there is less of a need for finance to get involved in who is entering or leaving the company, the administration of benefits, or similar human resource-oriented tasks.

If your employee population has lots of questions about their pay that need to be discussed confidentially on a routine basis, this argues for keeping payroll information within Human Resources.

Payroll is an employee-facing function, which is why some feel that it belongs with HR.  Changes to pay, entering termination dates and start dates, and entering or changing benefits information falls under the human resource umbrella.

On the other hand, Patrick Doolin, CEO of Integrity Data, says “We usually see payroll under finance.” If you have payroll processed internally, for example with products from companies like Patrick’s, then payroll employees may be asked to make changes in the financial system that they aren’t really trained on. Most companies don’t want non-accountants searching around in their company accounting system to make changes they aren’t familiar with.

Having said that, there are such things as accounting-trained human resource employees.  Payroll is the largest expense for most firms, and there are penalties for failing to comply with tax regulations and other risks that argue the function belongs to finance.  Companies need separation of duties as well as strong internal controls. Audits of payroll financial data should be done by the finance department on a regular basis, regardless of who the payroll system reports to.

When you’re trying to design an organization that functions well and avoids financial risks, such as the risk of embezzlement as well as risks around violating HR laws and regulations, there are 2 things that are clear:

  1. You don’t want non-accountants in your accounting system.
  2. You don’t want people who lack HR training interacting with employees on matters where one wrong word can create a lawsuit.

Separation of duties is critical to mitigating these risks for your company’s largest expense.  You want accounting people doing the accounting, finance people to do finance, and human resources to take care of HR. I think that argues that the payroll processing function should be in finance, but most of its input data needs to come from human resources. With these two systems working hand in hand, you can ensure that your largest resource and expense is spent wisely.