When deciding who should handle payroll processing, 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 Handle Payroll in a Company?
When it comes to processing payroll, the person or team responsible will very much depend on the organization. While a larger organization may have a finance department or even a payroll department to rely on, a smaller to mid-sized business may need to rely on executive leadership, or even the owner, for payroll.
The most common teams or roles that handle payroll in a company include:
- Human Resources (HR)
- Finance and / or Accounting
- Executive Leadership / Owner
Now let's look at each team / role, and when it might make sense for them to handle payroll.
Does HR Handle Payroll?
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 common payroll errors.
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.
Does Finance and Accounting Handle Payroll?
Undoubtedly, payroll involves handling a substantial amount of numbers. Therefore, ensuring accuracy is of the 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.
Do Owners Handle Payroll?
For small businesses, it is not uncommon for the business owner or executive leadership team to take responsibility for payroll processing. Owners may choose this approach when the company is still growing and does not yet have dedicated HR, finance, or payroll staff.
Handling payroll personally can give business owners greater visibility into payroll expenses and employee compensation. However, payroll can also be time-consuming and requires careful attention to tax requirements, deadlines, employee information, and compliance.
Because business owners' time is limited, it is common, and often considered a best practice, to partner with a trusted payroll company for assistance. Outsourcing payroll can reduce the administrative burden on business owners while helping ensure employees are paid accurately and on time. A payroll provider can also assist with payroll tax calculations, filings, compliance requirements, and other time-consuming payroll responsibilities.
Should Payroll Be in HR, Finance, or Something Else?
The answer lies in the structure and size of your organization and its operations. Here are some key points to consider when deciding who should own payroll in a company.
How Business Structure and Environment Impact Who Handles Payroll
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.
Of course, for a smaller or growing business without the specific manpower to handle it, payroll may need to fall to executive leadership, or even the business owner. As mentioned earlier, this does give some benefits to the owner of a growing company, such as greater visibility into payroll expenses and employee compensation, but can prove to be a lot to handle on one's own.
This is arguably the best time to turn to a third-party payroll service.
Business Size May Influence Who Handles Payroll
HR payroll processing often makes more sense when it comes to the payroll steps for small businesses. With fewer people to manage, HR gets to know each person, so keeping it here can reinforce workplace community and culture. This is also typically where owners who handle payroll are most common.
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.
Frequently Asked Questions (FAQ)
Here are some common questions regarding who should handle payroll in a company:
Who should handle payroll in a company?
There is no one-size-fits-all answer. Payroll may be handled by HR, finance or accounting, executive leadership, or the business owner. The best choice depends on the organization's size, structure, workforce, and operations.
Does HR handle payroll?
Yes. HR may handle payroll because the department already works closely with employees and typically has knowledge of benefits, labor laws, privacy standards, promotions, terminations, and new hires. Keeping payroll within HR can also reduce communication steps and the potential for errors.
Should finance or accounting handle payroll?
Finance and accounting can be well suited to payroll because payroll involves significant financial data and requires accuracy, verification, and checks and balances. Accountants may also have a strong understanding of payroll tax requirements. However, keeping payroll in finance can sometimes result in communication delays with HR and a less employee-focused approach.
Do business owners handle payroll?
Business owners or executive leaders commonly handle payroll in small or growing businesses that do not yet have dedicated HR, finance, or payroll staff. While this can give owners greater visibility into payroll expenses and employee compensation, payroll can also be time-consuming and requires careful attention to tax requirements, deadlines, employee information, and compliance.
Should small businesses have HR or finance process payroll?
For small to mid-sized businesses, keeping payroll within HR may make sense because HR has fewer employees to manage and can become familiar with individual employees. Larger organizations are more likely to have finance handle payroll, particularly when they have specialized employees, advanced automation, and integrated technologies.
Can a company use a third-party payroll service instead of having HR or finance process payroll?
Yes. A third-party payroll service can provide a balanced approach by integrating payroll technology with HR's timekeeping and workforce management systems while allowing finance to oversee payroll auditing. This can help maintain payroll accuracy, tax compliance, and compensation compliance while reducing the administrative burden on internal teams.
What should a company consider when deciding who handles payroll?
Companies should consider their organizational structure, business size, workforce, software and technology, employee turnover, and the level of support employees need. Payroll is not necessarily solely an HR or finance function, so businesses should determine which approach best fits their specific operations.
Using a Third-Party for Payroll
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.
