Why the HR and Payroll relationship is more important than you think

People often claim Payroll should be part of a Finance function rather than an HR function. Payroll professionals process and calculate payments so it must be part of finance, right? Additionally, Payroll departments are also responsible for paying bonuses, dealing with changes in taxation legislation as well as a host of other important financial tasks. These responsibilities alone leave many with the viewpoint that Payroll is a Finance responsibility.

But is it?

At first sight, this logic may seem difficult to argue with. Some companies have even created a section within their Finance teams called “Finance HR”. A study of HR professionals carried out by Advanced Business Solutions found that there are many mixed opinions on this matter. The study was carried out both in the UK and the USA and showed that only 25% of participants believed Payroll should sit within HR. However, 24% of participants felt that Payroll should be a component of the Finance team (with everyone else thinking it should be positioned between the two or be altogether outsourced)! The thinking behind positioning Payroll within Finance is down to the fact that Payroll is cost-sensitive and is typically the most significant expense for most organisations. The payroll function is also very numbers driven. This makes a compelling case for placing Payroll within Finance. However, the relationship between HR and Payroll is a close one too, and maybe more important than you think.

Here’s why:

The relationship between HR and Payroll is essential due to the close correlation between the activities undertaken by each. HR has an instrumental role in determining how best to remunerate talent, and Payroll, in turn, is responsible for ensuring that approaches to reward management put into practice. This is a critical factor for defining the role between the two and for making a case for excellent relationships between them. There are numerous other examples of this, not just the monthly pay run. These include the payment of bonuses, as well as raises in salary. They also include the ties between firing people and that person getting paid as well as other areas such as absenteeism, sickness leave, maternity pay, paternity pay, adoption pay, starters and leavers and more. These are all areas where a good relationship between HR and Payroll can lead to a more efficient working partnership, which ultimately results in improved employee services provided to staff.

Another important, but linked concept is the fact that Payroll contains significant employee-related confidential information, often accessed or relied upon by HR. For example, Payroll information could be analysed to support HR diversity and equality agendas. These are employee-related areas that may be managed by HR but are intrinsically linked to data held and controlled by those in Payroll. If Payroll is situated within finance, it might be more difficult for HR access data to analyse whether diversity and equality policies are being productive. Offering equal opportunities or fair pay are just two examples, but there can be many more. By closely linking Payroll and HR operations it is possible to track correlations and put in place systems for reducing inequality. Together, HR and Payroll functions have all the pieces to put puzzles together to develop, analyse and implement extremely effective employee policies and initiatives.

Confidentiality is also an area where the relationship between Payroll and HR is intertwined. The decisions that are made around pay and benefits need to be highly confidential. So too, does the data that both HR and Payroll utilise to ensure that people are paid in a timely way. This includes data such as home addresses, National Insurance details etc. From a practical perspective, this is another critical reason why HR and Payroll need to have a close relationship and why that link needs to be robust. With new GDPR data protection regulations well on their way, it makes, even more, sense to solidify the relationship between HR and Payroll, if even just for data protection purposes (though of course there are more reasons than that, as shown here).

Another essential reason why Payroll and HR’s relationship should be a close one is the fact that decisions that HR make drives what Payroll does, and arguably more closely and in greater detail than decisions made by Finance. For example, Finance may decide that the budget for pay will not be more than a certain amount each year. However, it is HR that will work with managers to determine what people will be paid and why. Finance does not have an oversight of this, and arguably, with its intensive focus on numbers, does not have the close, in-depth experience of understanding the skills, knowledge and expertise that different employees bring to a team. This would make it challenging for Finance to work with Payroll supporting the latter on decisions made, or even making the decisions in the first place.

Ultimately, the relationship between Payroll and HR is more intricate and interlinked than might at first be realised. Getting underneath the surface, it seems clear that this is a relationship that needs to be healthy, robust, retained and nurtured, despite the pressure from some to locate Payroll in Finance.

As always, Love payroll, love what you do, work smart, work hard – just be careful not to overdo it.

This article was submitted by Nick Day, CEO of JGA Recruitment – the leading Payroll, HR & Reward Recruitment Specialists.

Nick Day
CEO
JGA Recruitment Group
Payroll, HR & Reward Specialist Recruiters
Email: nick@jgarecruitmentinc.com
Tel: 01727 800 377