Does payroll belong in finance or HR?

“Payroll should be in finance — for now.”

Ana Laiu

In an ideal world, payroll would stand on its own. But we’re still quite far away from that, which is why I think that payroll belongs in finance — for now. After all, we’re talking about money here. Payroll is usually a company’s biggest cost factor, and it’s really important to understand how that factors into a business’s budget structure. Payroll plays a huge role in budgeting forecasts, and if you’re looking at productivity and output you’ll really want to make sure that your payroll data is as accurate as possible. And at the end of the day, it’s people’s money. That net pay translates into people paying their bills and buying food for their families. 

So, at its core, it’s a financial function more than anything, particularly in medium to large organizations. That’s because, for organizations of these sizes, the risks associated with getting payroll wrong can be significant. Especially if companies are listed on the stock exchange, there’s a vested interest in ensuring that there’s good governance and compliance when it comes to payroll and ensuring that every cent is properly accounted for. 

Economic developments like rising inflation, the rising cost of living, the rise of minimum wages and lower retirement ages are all issues that a business needs to factor into their medium- and long-term planning, which is why I think that the finance department has more of a vested interest, not to mention the expertise, to shape a payroll strategy that aligns with a company’s larger goals. 

This doesn’t mean that payroll should be siloed off completely from other departments. Payroll still needs to work closely with HR to ensure maximum efficiency. If you think about the employee experience, financial wellness is a big part of that. The data that payroll provides has uses for the company as a whole that go beyond the finance department. 

Speaking of data, I think the technological developments we’re currently seeing in terms of AI and automation in payroll are what’s going to take payroll to the next level. AI will help payroll move away from being just a transactional process and enable it to be part of the decision-making process within an organization by harnessing the power of data. But we’re just not there yet, and as long as that’s the case, payroll still belongs in finance.

“Payroll is best suited to sit in HR.”

Alba Hough

Human resources is not only about managing people, but also about cultivating, engaging, and fulfilling the employee experience, and payroll plays an essential role in that. Payroll influences and impacts an employee’s relationship with their employer. That’s why it often makes sense for payroll to be a part of HR, since it already plays a central role in managing various payroll activities.

Think about all it takes to process payroll: Employee data, time and attendance management, compliance with employment laws, communication with employees, problem resolution, and record keeping. Many of these responsibilities are supported by HR teams and without a close coordination of HR and payroll, errors could crop up in the employee’s payroll calculations. And since HR professionals have a strong understanding of labor laws, they can help ensure legislative payroll compliance.

Payroll is such an employee-facing function, covering facets such as employee leave, onboarding, terminations, promotions, benefits, compensation, and so much more. By having payroll be a part of HR, a company can effectively support and manage its most valuable asset: Its people.

Another reason why HR is best suited to run payroll is the issue of data and confidentiality. Handling sensitive employee data and ensuring its safety is already a key pillar of HR, so employees can rest assured that their data is in experienced hands. This kind of payroll data is also very valuable for developing a company’s long-term strategies and goals, and having access to this kind of data can help HR provide executives with detailed insights into the demographic makeup of their workforce, equality markers, and the cost of onboarding new people versus upskilling existing talent. This is all crucial information that informs a company’s strategy while also helping it establish itself as an attractive employer amid an ongoing war for talent.

“Payroll should be its own department.”

Lizabeth Lay

Why shouldn’t payroll be a department in its own right? Payroll supports HR, the finance department, and auditing processes — there are so many functions within an organization that are supported by payroll. In fact, payroll often forms a bridge between HR and finance, communicating simultaneously with both teams to ensure a smooth workflow. To me, that warrants payroll being a department in its own right.

Payroll has often been considered the poor relation of HR and finance. But during the pandemic, payroll’s profile was certainly raised. We saw what a prominent role payroll played in keeping everything running and ensuring people could be supported during such a difficult time. But payroll has always been crucial to business: If you don’t get people paid, or don’t pay them accurately and on time, you’ve got an unhappy workforce. People can’t pay their bills and can’t meet their rent or mortgage payments. Payroll is also usually an organization’s largest cost. So, in my opinion, payroll teams deserve a seat at the table.

Heads of payroll need to be included in high-level decision-making processes within an organization, since they can contribute information that significantly affects budgets and company policies, including providing valuable data analysis that highlights how a business operates and what can be done to optimize it. Payroll can provide answers to questions such as: How many payslips are being issued? What is the error rate? What’s our level of overpayments and underpayments? What is the cost to the business when providing benefits? How are we doing in terms of gender equality? Payroll provides so much information that organizations depend upon to help support their goals and what they’re trying to achieve.

With the right level of resources invested in payroll teams, they can be more effective in ensuring a company has a happy workforce while running at maximum efficiency. 

As automation and generative AI begin taking over these administrative tasks, payroll professionals will have more time to engage in critical data collection and analysis. But for those resources to be directed to payroll departments, they need to be prominently visible to the leadership of an organization. And what better way to ensure visibility than having payroll be its own department?

Sign up to keep up to date with ReThink Quarterly.