Who Should Process Payroll: HR or Finance?

When deciding who should handle payroll processing - HR or Finance - there is no clear-cut answer. It all boils down to the unique needs of each organization. In some instances, it makes sense for the finance department to take charge, while the HR team may be better suited for the task in others. However, it's crucial to remember that straying from the conventional approach can introduce potential challenges.

Who Should Process Payroll HR or Finance?

Payroll Processing in HR: What's It Look Like?

Payroll processing is one of many responsibilities your HR department may take on. Many business owners and HR leaders choose this option because HR does have expertise in handling employees with a very people-first mindset. This can lead to better employee experiences than finance's financial data handling expertise.

Furthermore, HR often designs and manages benefits packages. They know labor laws and uphold ethical and privacy standards in your company.

HR is also the first to know about promotions, terminations, and new hires, so keeping payroll processing here reduces communication steps and the potential for error.

However, it's important to note that maintaining payroll processing within HR requires HR professionals to develop a strong understanding of accounting. While they are competent in doing so, it's worth considering that accounting responsibilities may not have been their primary focus when choosing an HR career path.

Payroll Processing in Finance: What's It Look Like?

Undoubtedly, payroll involves handling a substantial amount of numbers. Therefore, ensuring their accuracy, verification, and double-checking is of greatest importance. Fortunately, finance departments are well-equipped with checks and balances to make this happen.

Payroll typically constitutes the largest expense for most companies, accounting for 15-30% of the budget, and even more in service-based industries. Given that budgeting falls under the finance umbrella, you can see why people would advocate for keeping payroll processing with those who manage the money.

Your accountants also serve as tax advisors. As a result, they possess an understanding of the intricacies of the payroll tax code that HR professionals may not be as well-versed in.

The drawbacks include potential communication delays from HR and a lack of the people-focused approach that HR professionals are renowned for.

Beyond considering these pros and cons, looking at how payroll processing placement might work with your business structure is essential.

How Business Structure and Environment Could Impact Your Choice

If your company relies on third-party software to assist in payroll processing, it may be more logical to entrust the task to your accounting team. This is because such technology often integrates smoothly with other accounting programs they use.

However, if your organization experiences high employee turnover or has a workforce that frequently seeks clarification, an argument can be made for keeping payroll processing within HR. Again, maintaining employee confidentiality and delivering a positive experience are crucial considerations in this scenario.

While employee compensation primarily revolves around monetary aspects, it holds a deeply personal significance. For this reason, many believe that payroll processing naturally belongs to HR.

Business Size May Influence Your Decision

HR payroll processing often makes more sense in small to medium size businesses. With fewer people to manage, HR gets to know each person, so keeping it here can reinforce workplace community and culture.

Large organizations often have finance handling payroll processing. In addition, these big organizations often have advanced automation, specialized employee service professionals, and highly integrated technologies that SMBs don't.

However, even within these large companies making sure finance is always up-to-date is a challenge. So, payroll processing is never solely an HR or a finance function.

How You Use Software within Your Company Can Guide You

There is a balanced approach that enables you to keep payroll within HR while still ensuring adherence to tax laws, compensation compliance, and accuracy. This can be achieved using third-party Payroll Services and technology that seamlessly integrates payroll between finance and HR. With this option, technology integrates with HR's timekeeping and workforce management systems, allowing them to handle the employee-facing aspects of payroll processing. Meanwhile, finance continues to oversee payroll auditing to guarantee compliance.

If you're ready to take the next step in your payroll processing, contact Workforce PayHub to explore our payroll solutions today.


Eric Jones
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