The functions of a company’s payroll and human resources (HR) departments are very different. Payroll are responsible for managing employee salaries, while HR is often in charge of managing employee relations. However, the two duties can occasionally converge and are often handled by the same person, especially in a small business. This system may seem advantageous on paper because there are fewer people to pay and an integrated approach to the company’s operation, but it can sometimes cause a variety of problems.
A business owner needs to understand not only how the two tasks differ in terms of their roles, but also how they can complement one another to get the best outcome.
The process of paying employees their salary or wages is referred to as payroll. The payroll department oversees processing taxes and other deductions, balancing payroll data with the accounting systems, and making sure that money gets to the employees on time.
On a weekly, monthly, or annual basis, the payroll run includes figuring out bonuses, expenses (for travel, mileage, food etc), paid holiday, overtime and other any payments owed. The payroll team handles wage reductions, recordkeeping, and the preliminary verification of pay information. Additionally, the payroll department is in charge of making sure that each employee receives a pay slip when their salary has been processed.
Human Resources Functions
HR’s primary function is the management of all employees within the business and to bring out the best in them and ensure that the business complies with labour laws and regulations.
Human resource management services encompass a wide range of tasks, including hiring, formulating and executing HR policies to engage employees or to foster a particular company culture, performance management, as well as the internal application of employment regulations. It also includes transactional duties like generating reports, collecting HR data, dealing with salary concerns, and maintaining personnel records.
Payroll and HR functions working together
Communication happens naturally when a small organisation has just one employee handling both HR and payroll processes. However, communication becomes key in a small organisation where numerous individuals fill these positions.
Most of the time, communication may be done online, allowing parties to exchange paperwork and instructions as needed. Unless a handwritten signature is required, documents are usually not printed and filed.
It’s crucial that confidentiality is always upheld because dealing with personal information about each employee is delicate. Only when necessary, and occasionally on a case-by-case basis, can information on any employee be transmitted between departments.
Payroll and HR integration
Payroll and HR requirements expand as a business goes from micro to small to midsize to medium-sized, and the departments require appropriate dedicated headcount. How these modules interact will be determined by their size, the function itself, and the needs of the organisation.
However, while being two clearly distinct functions, payroll and human resources are still close allies and there are other ways in which their relationship can develop.
1. Global payroll as a human resource function
Administration of employee benefits and compensation plans are closely related to payroll. Most changes in human resources, such as wage increases and overtime submissions, have a direct impact on payroll.
A HRMS or human resource management solution, on the other hand, is reliant on accurate and detailed payroll information to keep the business compliant.
It’s difficult to dispute the intimate connection between these two roles:
- HR enters the information for employees, and payroll confirms it.
- Payroll confirms benefit deductions once HR enters them.
- Payroll confirms salary and rate changes when HR enters them.
- Payroll processes bonus and incentive payments when HR approves them.
- Payroll uses current employee data for deposits and tax reporting after HR validates it.
- Payroll checks timesheets and notifies HR of issues with adherence while HR implements timekeeping standards.
Communication between HR and payroll is made easier when they are combined under one department. The personnel policies that affect remuneration are easily accessible to and understood by payroll workers, whereas HR staff are figuratively closer to those who oversee compliance.
However, combining both responsibilities in one department also increases risk. When non-accountants have access to your payroll systems, you leave yourself vulnerable to errors that could harm your reputation and cost you your best employees.
2. HR and payroll as separate functions
Financial errors in corporate accounting are considered unacceptable, so it begs the question, whether you should really include non-accounting personnel in payroll if the statistics are crucial?
Perhaps it is better to offer a clearly defined structure with a separation in responsibilities, where HR Services and payroll are independent functions with separate reporting structures. There is never any doubt as to who is responsible for what, and assets like payroll data are never mixed inadvertently.
The chance that your payroll department may unintentionally break a HR rule is increased by the fact that this separation might also cause communication between the two roles to decrease (or vice versa).
Separate functions expose you to errors like:
- Inaccurate benefit selections or a delay in implementing changes to the payroll.
- Payroll processing that is slow and ineffective owing to data or timekeeping mistakes.
- Inconsistency between annual leave payments and policies.
- Processing errors that cause off-cycle payments and/or fines for pay hikes and bonus payments.
3. A hybrid approach to HR and payroll collaboration
Seamless collaboration that is possible. You must have a thorough understanding of the distinctions between payroll and human resources, as well as each function’s objectives and interdependencies, in order to make the two work effectively together.
HR, for instance, is concerned with overseeing the employee experience. Although the HR department values accuracy, it is not everything.
The objectives of the payroll team include compliance, efficiency and accuracy.
The disparities between the two might lead to conflict; for instance, your payroll department may find it annoying to have to clean up data on the back end, and HR may find it frustrating to have to go through the red tape to process payroll changes.
Within one department is frequently the optimal setup for these two tasks, but with a few restrictions to keep important components apart.
You have a better chance of success with this strategy if you have:
- Clearly defined roles
- Separation of responsibilities
- Processes to ensure data integrity
- Shared KPIs (key performance indicators)
With this setup, the possibility of HR mistakes and payroll mistakes—which may be very expensive—is reduced while communication is improved and tension is reduced.
Can HR handle payroll?
No, in most companies, is the clear answer.
New hire onboarding and system configurations are handled by HR. Then, payroll is in charge of making sure that every part of their payment is handled properly. To make employee experience as smooth as possible, it’s important to make sure that both roles interact with one another effectively and ultimately cooperate.
For instance, if a worker decides to take maternity leave, it is the joint responsibility of HR and payroll to ensure a smooth transition to maternity pay.
Should payroll report to HR or accounting?
There is no easy way to decide whether payroll should report to HR or accounting because both choices have advantages and disadvantages.
For instance, even if payroll reporting to Human Resources has benefits, these experts might not have the necessary finance expertise required. The accounting department may have the necessary financial and technical understanding, but they are not prepared to handle concerns pertaining to employment or confidentiality. This indicates that if an employee experiences a payroll-related issue, it could pose a significant risk.
Avoiding breaking HR standards and regulations is crucial if you are involved in running an organisation. If the proper language isn’t used, it could lead to employment tribunal claims, so you don’t want anybody dealing with employees that hasn’t had proper HR training. Nevertheless, it’s crucial that those without any accounting skills don’t manage the accounting system.
In the end, it will rely on how the company or organisation is set up. It is crucial to take the employee’s questions about payroll into account. So it might be argued that payroll should report to HR. To make sure that payroll is managed in the best way possible for that specific organisation, both departments must function as a team and collaborate with one another.
The HR department, which manages everything from hiring through to pay slip processing and everything in between, often oversees payroll activities. Payroll may occasionally fall under the remit of the finance division, who also manages the input of salaries and deductions, the creation of payslips, any bonuses and incentives, expenses, and taxes. In order to effectively manage payroll-related responsibilities and functions, HR is crucial.