Who Handles Payroll in a Company, HR, Accounting or Finance?

The Deloitte Global Payroll Benchmarking Survey reported that 38% of the interviewed organisations had payroll reported to HR Management1, while 36% of organisations had payroll reported to Finance. Compared to the results from a similar survey earlier on, where more than half of the organisations had their payroll managed by Finance and only 31% by HR management, we could see a tendency for companies to move their payroll management under HR or under a shared service between Finance and HR management. These results came from 750 organisations questioned represented 55 countries.

So, is this an accurate representation of the payroll solution for the Asia Pacific region? Should payroll be managed by HR or Finance, or does it actually matter?

Who Manages Payroll – an HR Management Perspective

For many HR management professionals, processing and managing 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 recruitment, training and development, compensation and benefits etc. (you get the drift…) are HR’s responsibilities.

  • Employee confidentiality should be managed at HR management level, so payroll management would naturally reside with the HR department.
  • HR management primarily deals with employee relations, so if there are queries on payroll, HR should be responsible.
  • HR is best positioned to deal with payroll mangement, since the majority of payroll data originates from HR activities such as recruitment, terminations, promotions, unpaid leave, benefits, deductions etc.
  • HR staff and HR management have competency in labour laws pertaining to pay, medical, leave (time off), etc., which forms a big part of payroll legislative compliance.

Who Manages Payroll – a Finance Perspective

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

  • Managing payroll involves accounting functions and knowledge such as reconciliations, posting to the 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 management 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.
  • Managing Payroll is often the largest expense for most organisations and it should therefore report to finance for budgetary reporting and monitoring purposes.

So, Should Payroll be Managed by Under HR, Finance or Both?

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 for payroll outsourcing services provider. In the same Deloitte report, 73% of organisations outsource at least some aspect of payroll management tasks, 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.

Next Steps?

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 the 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?

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1 Source: Deloitte Global Payroll Benchmarking Survey