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Where does the responsibility for payroll lie? HR or finance?

Where should payroll sit in an organisation?   

 

The truth about business is things don’t always run smoothly. The difference between a good business and a bad business really boils down to the systems in place to rectify any mistakes that happen. For example, issues with payroll.

It’s one of the most crucial areas of any company, and yet it’s also an area up for significant debate. Where should the responsibility of payroll sit, and is what’s best for employees always best for efficiency?

There are of course two options as to where the payroll function should be placed within a company structure. On the one hand, the complexity of tax laws and other financial knowledge that staff in this department need suggests that finance is best suited to take control of the function. However, the resulting pay cheque is an incredibly personal thing and if issues arise, they need to be dealt with sensitively, confidentially and with excellent interpersonal skills.

The latter would, therefore, point to HR taking the responsibility for payroll. They are best placed to deal with the gripes, complaints, anger and upset that can come when an employee is unhappy – for example, if they have been over or emergency taxed, or worse still, not paid at all (eeek!). This is before we come to more progressive firms who offer options such as company loans to help staff through personal problems and upheaval.

If this sounds like a bit of a management minefield, then prepare to tread even more carefully. A LinkedIn survey by Advanced Business Solutions revealed 25% of respondents – 79 HR and payroll professionals from the UK and USA – believe payroll function should be in HR’s remit. In comparison, 24% say it’s a finance job. Pretty close, right?

So how can we decide where to locate the payroll team? Given the variables involved, can it really be placed within just one department, or should we separate this from those structures, creating a new business area?

Some would suggest that payroll placement depends on company culture. For those who see payment as policy, a personal affair controlled by legislation, privacy and driven by equality, it should be HR taking a lead. With firms who see this as a numbers game only, finance will always spring to mind first. In truth neither is accurate; every payroll department has staff from both HR and financial backgrounds.

Andrew Northcott, Managing Director of Roubler, which specialises in HR and payroll software, believes the best option is not to treat the issue with individual teams, but consider the function as a whole with lines that merge, but are clearly understood. Payroll should sit between the two obvious ends, an option the majority in the aforementioned survey – 36% – agree with.

“Having an end-to-end system means that HR, payroll and finance work together rather than as separate units – it’s a more holistic approach,” Northcott explains. “We do have a dedicated payroll expert, however as Roubler allows all functions to connect seamlessly on one platform, it gives us, and our customers, the flexibility to change where payroll sits according to their needs.”

In order to achieve this a company must invest in payroll software that’s fit for purpose, which all staff in relevant departments can access, amend and add to. And while this should be sophisticated, it’s vital for things not to become overly complicated, which can cause confusion and lead to errors and oversights.

“An end-to-end workforce management software where data flows seamlessly from one function to the next is the single biggest way you can improve payroll efficiency,” says Northcott when asked what recommendations he would make to companies still trying to navigate their own payroll needs.

“We, and our customers, don’t have to worry about data entry – rosters are completed online, timesheets are created automatically based on time-clock data and are automatically fed directly to payroll for processing,” he continues, explaining exactly how human resources and legwork can be reduced with better payroll software. And it doesn’t stop there.

“Furthermore, having a payroll engine that automatically calculates pay conditions and tax rules greatly improves the efficiency of payroll. Manual calculations take a significant amount of time and knowledge to get right, so eliminating that step makes the process far quicker and far more accurate.”

This sounds logical, of course, but there’s a difference between understanding something in principle, and actually rolling the idea out, and making the necessary investments. Ultimately, though, it comes down to this. Those who don’t see payroll efficiency as a major requirement and don’t carefully consider where payroll should sit don’t just risk wasting time, they are in danger of falling behind the competition as productivity will be lower overall. And if avoiding that is not a business priority, we don’t know what is.

 

Words by Richard Trenchard.

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