Payroll Services – an HR or Finance Responsibility?

By Zac Ma – Associate Director, SEA Sales, Links International Singapore

A recent Deloitte report on Payroll Operations indicates that organisations with fewer than 10,000 employees tend to have their payroll services reporting either to HR or Finance.The survey looked into 58 companies from various industries, with headcount ranging from 200 to 300,000 employees on a global scale.

Deloitte’s 2014 Payroll Operations Survey - parties responsible for payroll reporting by company size.
*Deloitte – The Payroll Operations Survey December 2014

So, is this an accurate representation of the payroll management approach for the Asia Pacific region? Where should payroll sit within an organisation and does it actually matter?

I have worked with many organisations over the years on payroll solutions across APAC and yet I don’t have an outright correct answer to this question. It seems to me that opinions are split as to where payroll should sit and this continues to be a topic of much debate.

Payroll from an HR Perspective

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 exactly the same reason why recruitmenttraining and developmentcompensation and benefits etc. (you get the drift…) are HR’s responsibilities.

  • Employee confidentiality should be managed at HR level, so payroll would naturally reside with the HR department.
  • HR primarily deals with employee relations, so if there are queries on payroll, HR should be responsible.
  • 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 Perspective

On the other hand, there are advocates who believe that payroll processing should always be an accounting function’s responsibility within the finance department.

  • Running payroll involves accounting functions and knowledge such as reconciliationsposting 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 be in compliance.
  • Payroll is often the largest expense for most organisations and it should therefore report to finance for budgetary reporting and monitoring purposes

Tiebreaker

There are, of course, other schools of thought and each of these options are worth an entire new blog entry by itself.

One is for the payroll function to sit as part of a shared services model. This approach, according to Deloitte’s survey, would probably be more suited for organisations with more than 10,000 employees.

Another option is for companies to look at outsourcing payroll to specialists. In the same Deloitte report, 31% of organisations in Asia Pacific outsource their payroll and nearly all organisations outsource some portion of their payroll operations, in order to reduce costs, manage risk, exposure, skilled staffing concerns and reduce highly administrative/paper-driven tasks.

In the context of this blog, outsourcing can allow the segregation of duties between HR and Finance; in short, the HR department gets to keep individual employee information within their jurisdiction and the cash and accounting parts remain within the Finance department.

Final Thoughts

Payroll management is recognised as an essential business function for both big and small corporations. The impact on where payroll is positioned, whether within or outside the organisation, would vastly differ from one business to another.

Although this has become such a corporate quagmire, I think that for most employees, it does not matter where the payroll falls under, just so long they get paid!

While compliance and legislation requirements become increasingly complex and globalisation of businesses through M&As becomes increasingly common, the call to have payroll specialisms would most certainly be justified. It would be interesting to understand where payroll sits in your company and why. Where do you stand on this debate?

Links International is a leading payroll outsourcing provider in Asia and supports 15 countries across Asia-Pacific. If you’re interested to explore the idea of payroll outsourcing, please do not hesitate to contact us.