Should Finance or HR Be Responsible for Payroll?

Even Split Between Payroll Reporting to HR and Finance 

In Deloitte’s 2020 Global Payroll Benchmarking Survey Report, they found a fairly even split between companies having their payroll reporting under HR (38%) and Finance (36%). This is considerably different to the 2018 response, where 51% said that their payroll responsibilities were under Finance.

2020 Responses

Source: Deloitte 2020 Global Payroll Benchmarking Survey
Source: Deloitte 2018 Global Payroll Benchmarking Survey

Deloitte’s survey targeted organisations in a wide range of industries, ranging in size from a few hundred employees to several thousand across 55 countries.

Do these results mean that more companies are increasingly seeing payroll as part of the HR department’s responsibility? And should these findings affect where payroll sits within your organisation?

The truth is that this data shouldn’t affect where you place payroll in your business as there is a good argument for both HR and Finance to be the ones responsible: 

Payroll from an HR Standpoint

Many believe that payroll is part of HR as it is an employee-facing function and for many HR professionals, processing payroll is one of the many deliverables required of their roles. The argument that payroll services should stay within HR is very often the same reason why recruitment, training and development, compensation and benefits etc. are HR’s responsibilities.

  • Payroll is some of the most sensitive information and should be kept strictly confidential. Employee confidentiality should be managed at the HR level, so payroll would naturally reside with the HR department.
  • There is always potential for payroll processing errors. As HR primarily deals with employee relations, queries on payroll should be an HR responsibility.
  • HR is best positioned to deal with payroll since the majority of payroll data originates from HR activities such as recruitment, terminations, promotions, unpaid leave, benefits, deductions etc.
  • HR has competency in labour laws pertaining to pay, medical, leave (time off) etc., which forms a big part of payroll legislative compliance.

Payroll from a Finance Standpoint

When dealing with numbers it seems like a natural choice for the finance team to take control. Some advocate that it should always be an accounting function’s responsibility, as payroll touches many core accounting responsibilities.

  • Running payroll involves accounting functions and knowledge such as reconciliations, posting to general ledger etc., which are the core responsibilities of the finance department.
  • Taxation issues on payroll matters mean that finance professionals are better placed as expert advisors for the organisation.
  • Strong internal controls would dictate that payroll is generally a finance job, as HR professionals are not usually aware of the strict legal and audit procedures that payroll must follow to comply.
  • Payroll is often the largest expense for most organisations and it should therefore report to finance for budgetary reporting and monitoring purposes.

Can Sharing Payroll Responsibilities Be the Way Forward?

Having your payroll function as part of a shared service model is also growing in popularity, respondents reporting payroll to shared services increased by 64% since 2018 according to Deloitte.

As both HR and Finance deal with confidential information, a partnership between the two departments makes a lot of sense when dealing with payroll.

There has been an increasing trend towards a shared service model

Source: Deloitte 2020 Global Payroll Benchmarking Survey

Is Payroll Outsourcing an Even Better Alternative?

Payroll outsourcing relationships between vendors and businesses are continuing to mature, showing that businesses that had previously outsourced their payroll are seeing the benefits and continuing this partnership.

58% of respondents have been with their payroll provider for more than 5 years

Source: Deloitte 2020 Global Payroll Benchmarking Survey

They also reported that 73% of the organisations outsourced some aspect of payroll, with the majority of organisations generally satisfied or very satisfied with their payroll services provider.

For fast-growing companies that are expanding their footprint to new countries, it makes sense to outsource their payroll as tasks can quickly become complicated, time-consuming, and increasingly costly as they are dealing with more regulations.

Outsourcing payroll or a portion of it, is growing increasingly popular as it is a great way to reduce costs, manage risk, exposure, skilled staffing concerns and reduce highly administrative/paper-driven tasks. Businesses identify payroll outsourcing as a way to improve their processes, especially in compliance and payroll accuracy.

Top Ares of Focus or Improvement Relating to Payroll Provider Services

Source: Deloitte 2020 Global Payroll Benchmarking Survey

As governments around the world have been announcing new measures due to COVID-19, payroll complexity has increased. It comes as no surprise that even more businesses are choosing to outsource their payroll to ensure compliance with new regulations.

For your employees, whether your payroll falls under finance or HR doesn’t matter, the most important thing for them is that they get paid correctly and on time! Delayed or incorrect pay can affect your employees trust in your business, impact productivity, and hurt your businesses reputation. In an age where news spreads fast, your employer brand could be at risk if you gain a reputation of late and wrong payments in the industry.

To learn more about the benefits of outsourcing your payroll, contact our professional payroll experts now!

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Links International is an industry leader in innovative HR outsourcing with services such as payroll outsourcingvisa applicationPEO/EOR Secondmentoutplacementrecruitment and more! Contact us for more information on how we can help leverage your HR function.