Who should payroll manager report to – HR or Finance?

The payroll function in any organization is perhaps one of the most important functions. But where the responsibility of payroll management resides has been a topic of debate for decades now. According to a recent report, ventures or organizations with less than 10,000 employees are leaned towards reporting of their payroll services to either the Finance or HR department.

Let’s understand where both of these departments stand individually and together for the whole payroll process.

The Role of HR in Payroll

In many organizations, one of the prime directives of HR professionals is delivering on the processing of payroll. Many argue that payroll management should fall under the HR department as they are also directorial for recruitment, compensation, benefits, training, and many other activities.

Here are the reasons why HR plays a crucial role in payroll management in organizations:

  • The HR department is in charge of employee confidentiality, and hence has all the reports about the employees’ financial reporting to the company.
  • The HR is also responsible for handling the employee queries and all the payroll related inquiries from the employees come under its belt. Taking this into consideration, HR should be responsible for payroll management as well.
  • Bulk of payroll data such as Form-16, responses to tax-saving investment declaration forms from employees, financial reports, benefits, attendance, leaves, unpaid leaves, recruitments, etc. falls under the supervision of the HR department. Hence, the processing of payroll benefits from being handled by HR due to the availability of these crucial pieces of information already at their hands.
  • To keep track of the Payroll Legislative Compliance, HR plays a crucial role as it has the competency for assessing labor laws related to medical leaves, salaries, etc.

The Role of Finance in Payroll

Finance plays a major role in payroll management in many organizations. While the importance of HR in payroll still stands strong, there are many reasons why Finance is preferred by many organizations or even employees for handling processes related to payroll. Here are the major reasons why:

  • The Finance department’s core responsibilities reside in accounts, posting to the general ledger, reconciliations, etc. So, it makes sense for it to handle payroll management as well.
  • The word “Finance” has a different weight. Since the professionals in this department are proficient in financial advisory, they hold a better place amongst organizations for payroll knowledge. This is especially true in the case of taxation issues, which requires their expert advising to amend and execute those issues successfully.
  • Auditing procedures, as well as legal procedures carried out for organizations, are strict, and fall under the supervision of Finance. Since HR professionals aren’t proficient in these procedures, the responsibility for handling them falls under Finance, which makes them a viable choice for processing payroll.

Do HR and Finance Intersect in the Payroll Process?

There have often been rumblings about a joint effort from both departments to handle processing payroll. A “shared service model” for this process would be the ideal case scenario.

But in the research conducted for finding out where the payroll responsibilities lie, it was also reported that this shared model is more suited for organizations with over 10,000 employees. 

One alternative option chosen by many companies is to find external vendors to manage payroll which also helps ease the process. In the Asian region, over 30% of companies prefer to do this to at least some extent. The main purpose of this is that both HR and Finance get to perform their individual duties, and the segregation helps in avoiding any clutter in the processing of payroll. 

Conclusion

The roles of HR and Finance are defined, and it’s up to the organizations to choose which department handles the processing of payroll. 

A final answer to “Who should payroll manager report to – HR or Finance?” is not going to come by anytime soon. Nevertheless, having some assistance in this intricate process can help organizations save a lot of time and resources.

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