The GoSmartHR Blog

Where does payroll fit within an organisation?

Most business owners will agree that one of the biggest challenges when it comes to payroll, is agreeing on which should take the responsibility for it. So where does payroll fit within an organisation? The first aspect you need to take into account when you are determining how to manage payroll for your business is where it should sit.

Having the right people handling payroll within an organisation, helps aid efficiency

Below, we are going to take a look at payroll in terms of being under both the finance and human resources departments, respectively. This will help you to get an idea of what is best suited to your unique business.

Payroll managed by the finance department

Many businesses would argue that due to the fact that payroll involves financial elements, it’s obvious for it to sit within the finance team.

The reasons for this are:

Payroll is the biggest cost for most businesses and, because of this, business owners report to the finance department for budget reporting and forecasting.

The finance department is typically aware of the stringent audit and legal processes that payroll must follow in order to be compliant.

Due to taxation matters that relate to payroll, financial experts are better placed as advisors with regard to tax.

Running payroll involves accounting knowledge and functions, something that the finance department is responsible for.

Payroll managed by the HR department

As payroll directly affects an employee, many companies agree that together with compensation and benefits, training and development, payroll should be handled by HR as well.

This includes the following:

HR has the competency when it comes to labour laws relating to medical aid schemes, leave benefits, salary allowances, and deductions as well as PAYE and UIF. This all forms a substantial portion of legislative payroll compliance.

HR manages deductions, benefits, unpaid leave, promotions, terminations, recruitment, etc. And is best positioned to deal with payroll in this sense.

HR’s primary function is dealing with matters that affect the organisation’s employees. Should an employee have a query regarding payroll, it is seen as an HR responsibility.

Employee confidentiality should be managed at HR level.

So, what’s the best solution?

As you can see, there are benefits and challenges associated with both options. If payroll resides within the human resources department, these professionals will not have the accounting and financial knowledge required, which can create financial risk.

But, should the financial department not handle employee issues efficiently and with confidentiality, retaining and attracting talent will be affected.

Moreover, you also need to consider whether or not your employees are likely to have a lot of queries pertaining to payroll. If they are, this could be a valid argument for keeping it under the Human Resources department.

Ultimately, the answer is going to depend on the structure of your business or organisation

Because of all of this, it would seem evident that both departments need to work together to reach the perfect conclusion when it comes to payroll management at any business. A popular approach nowadays is for the payroll function to sit between the HR and finance departments.

For finance and HR to be successful, both functions need to have full control over employee data. Confidentiality is certainly an area where the intertwined efforts of finance and HR will make a notable difference. This will be the key towards developing, analysing, and implementing effective policies and initiatives that reduce errors leading up to an employee’s final gross pay.

You need to ensure that HR professionals handle all employee-facing matters whereas those in the financial department handle all of the accounting matters.

There is a lot that needs to be considered when determining how payroll should be managed within your own company. After all, is said and done, collaboration is the key to success for any modern business, and managing payroll is no exception.

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