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Where does Payroll ‘Fit’?

Yes, we’re tackling that contentious issue – does Payroll sit in HR or Finance?

Largely, I think this depends on the organisation and I have to hold my hands up and say I don’t think there is a one size fits all situation. I also think the answer to this depends on the size of the payroll and whether expertise is available in either department.

“HR do the Hiring and Firing. Finance do the numbers.”

These days I don’t think there is anything further from the truth! HR & Reward teams often set the reward strategy, benchmark salaries and evaluate jobs to determine the value of the role for the business. Payroll deal with Auto Enrolment, Benefits, Pension Membership and absence payments. There really is a huge overlap between the two.

My question, therefore (and yes, this might be a cop out) is why does it have to sit in either?

One of the best examples of HR/Payroll/Finance working in harmony was a team I worked with who had a payroll of 23,000 employees. Clearly, in this case, the structure of the team was important but I do believe that for a much smaller organisation this would work too.

HR handled new joiners, leavers, changes to benefits, overpayments, underpayments and the team entered data into the system and calculated pay. (I can hear the screams of payrollers everywhere right now). Yes, HR were allowed to calculate payslips. Over six months, they were trained in payroll legislation and eventually handled the end-to-end process for payroll transactions. They were liaising with employees regarding onboarding or offboarding and telling them about final pay.

The payroll team then became much smaller and were focused on compliance, checks and balances and ensuring payroll best practice. For example, they would ensure all statutory payments and deductions were correctly maintained and acted as gatekeepers for payments. They processed the payrolls and completed checking (handing back exceptions to the HR Team for them to resolve their own errors). Work flowed seamlessly between HR and payroll – and continuously (the old in trays were binned and burned, never to return!).

Finance made the payments – Net Pay, third party payments and court orders and they processed the general ledger interfaces into their finance system (they knew it better than HR or Payroll did!).

Now this felt like a well-oiled machine. The employees who had any query with their pay could ask a person and not be handed between two different departments. There was no ‘them and us’ between HR and Payroll which I have seen on many occasions.

This begs the question and makes an important point –  why do Payroll have to sit in HR or Finance? Why not split the functions and give each team their own responsibilities in the process? Make payroll their own team, reporting into the same person as the Head of Finance or Head of HR.

Is this wishful thinking?

I wouldn’t go to Vauxhall and ask them to wash my car and I wouldn’t go to a car wash to ask for a new tyre.

Payroll is often one of (if not the) largest expense for a business so why would it not have its own function? Alternatively, in the example above the payroll could easily have been outsourced, especially as the detailed knowledge of the organisation and the ability to actually make the payments could be retained in house.

This topic, I know, is one that is discussed regularly and a number of surveys have been undertaken in the past with fairly limp results.

Where do you think Payroll should sit?

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