Who handles payroll in a company?
Payroll functions often span 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 your organization?
The answer depends on how your organization is structured.
If you have payroll processed by a third-party system, such as ADP, then your financial data should be easily accessible by your financial department whenever it is necessary. 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 other human resource focused 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.
Is payroll an accounting or HR function?
Payroll is an employee-facing function, which is why some feel that it belongs with HR. Changing employee pay rates, tracking termination dates and start dates, and entering or changing benefits information falls under the human resource umbrella.
But when payroll functions are treated as the responsibility of the HR department, there are some potential pain points. For instance, HR employees assigned payroll functions may have to work with financial systems they have little experience with. And most companies would not want non-accountants searching around in their accounting system making changes they are not familiar with.
Having said that, there are such things as accounting-trained human resource specialists. 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 administers the payroll system.
When you are trying to design an organization that functions well and avoids financial risks, adheres to HR and tax laws and regulations, while maintaining strong financial controls, there are two things that are clear:
- You don’t want non-accountants in your accounting system, to minimize the risk of accounting errors and mishandled financial data.
- You don’t want people who lack HR training handling private and personal employee information, as this risks serious privacy breaches.
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.
This heavily suggests that the payroll processing function should be in finance, but most of its input data needs to come from human resources and workforce timekeeping. The best payroll processing solutions should integrate seamlessly with your organization’s project and/or time and attendance time tracking system, along with your HR and benefits system to ensure permission-based accessibility from both the financial and human resources perspective.
With these vital business systems working hand in hand, you can ensure your organization always has proper financial controls while allowing HR to do their impactful work to support your workforce.