In A Business, Who Is Responsible For The Payroll?

For as long as human history, no one has wanted to work without proper compensation (unless out of goodwill). It’s normal for people to expect something in return for their hard work, but a simple thumbs-up from the boss won’t cut it. The least their employer can do is help them pay off their expenses in the form of salaries.

That’s how paid work became the norm, expecting paychecks to come usually every 1st and 15th of the month. Employers crunch numbers in the run-up to payday to make sure the pay is on time and accurate. Without a sound payroll system, any business or institution would never be able to hire anyone to work for them.

Business owners don’t essentially have to handle payroll, given that one miscalculation may lead to an employment disaster. Some businesses leave it to their human resources department, others to finance or accounting. There has been some debate regarding the correct department to handle all payroll duties, and this article will attempt to set the record straight.

Also read: Payroll Tax Vs Income Tax - The Ultimate Guide

Payroll in company culture

These days, anyone can’t talk about company culture without talking about payroll. An employer that compensates their people adequately promotes a positive culture and, to an extent, a positive image. Consequently, an employer that doesn’t pay their people what they deserve promotes the opposite. The reasons for its importance are several-fold.

First, payroll falls under finance and human resources, two of the essential aspects of a business. As money is a business’s lifeblood, payroll from a financial standpoint is concerned with paying employees while staying afloat. Just as important is the human resources standpoint, as they’re responsible for developing a conducive environment that includes proper compensation.

Experts have highlighted how fragile handling payroll can be. In a 2017 survey, almost half of employed Americans say they’ll start looking for a new job after experiencing two payroll errors. Millions are still living by the paycheck, so being shortchanged by tens of dollars because of a miscalculation can hit them severely. 

For the record, the onset of the COVID-19 crisis aggravated it, but the pandemic wasn’t the root cause. Flexible employment has been on the rise as early as 2018, with two out of five workers saying they want to work for an employer that offers them solid job security amidst global crises. Maintaining a sound payroll system is crucial in helping people weather hard times. 

Also read: Work From Home Tax Deductions Due To Covid-19

Another benefit of payroll that benefits company culture is the fact that it may encourage employees to work smarter and broaden their skill sets. Those who get paid right and on time are more likely to stay at their current jobs longer, even feeling that the business appreciates their contributions. They may even invest extra effort in learning new skills so they can climb further up the corporate ladder.

Finance vs. Human Resources

Designating payroll duties is a decision that takes some serious thinking. It’s not as simple as assigning it to finance or human resources and calling it a day. While payroll covers both aspects, these two differ a lot more than one might believe.

Assigning payroll to the finance department comes naturally; it involves distributing a business’s hard-earned money to its workforce. Paying less than what an employee deserves sets a negative precedent, but paying them more than necessary puts a company on the path to bankruptcy. The arguments for payroll being a financial matter are as follows:

• Depending on the industry, payroll expenses are among a business’s largest expenditures. In most cases, experts recommend allocating between 15% and 30% of gross revenue to paying employees. However, this sweet spot can be 20% to 40% for hospitality services and even upwards of 60% for trucking and logistics.

• Payroll requires a secure internal control to protect employee information, including their salaries. Finance departments are generally more aware of setting up an internal control system that complies with existing regulations. Such security also prevents other people from stealing money from under everyone’s noses.

• As mentioned earlier, computing salaries will have ramifications on a business’s survival. Payroll processing software makes the tasks much more manageable but requires general know-how on accounting to use them efficiently. As finance staff usually have degrees in accounting or financial management, they’re the best people for such a task. 

Also read: 6 Employee Engagement Strategies

On the other hand, letting human resources handle payroll makes as much sense, if not more. As the branch that maintains direct contact with employees more than any other, human resources is in a position to address payroll-related issues and concerns. Below are some arguments in favor of payroll being a human resources responsibility.

• Payroll isn’t just about computing hard wages; it’s also about other important factors like medical benefits, as well as vacation and sick leave credits. Competency-wise, human resources personnel have extensive knowledge about labor laws and other relevant legal requirements. In the U.S., they have to remember both federal and state labor laws.

• Employee confidentiality is a critical facet of quality human resources work. Performance assessments, workplace accident reports, health-related documents–everything and more must be kept safe and accessible to as few parties as possible. The department can better safeguard such information, preventing biases from influencing decisions.

• While human resources courses exist, the staff can also be graduates of other degrees like psychology, communication, and public relations. They understand that employees go to them to express their concerns or grievances, especially relating to their salaries. They’re in a better position to lend an empathic ear and offer reasonable solutions. 

With these aspects of payroll falling under two distinct departments, setting up a reliable payroll system is undoubtedly a challenge. The finance staff has the data on how much a company can pay its employees, but the human resources staff knows how much they should get. Sadly, it isn’t uncommon for these two departments to butt heads on occasion due to their distinct natures.

Subordinating one department to the other is a terrible idea. Both finance and human resources are equally crucial aspects of business; putting one under the other’s wing will undermine the business’s checks and balances. The superior department will have the final say, even if it goes against the other’s recommendations. 

Mutual Understanding

It’s clear that both departments only hold half the key to a sound payroll system. When they put their heads together and work toward a common goal, the benefits range from higher employee morale to a more lucrative revenue stream. It all boils down to understanding the nature of each other’s work and how they can collaborate.

Finance staff stand to learn a great deal from understanding the human aspect of doing business. The Chief Financial Officer has the undesirable honor of being a ‘bad cop’ or ‘naysayer.’ While it’s mostly a matter of misunderstanding, it pays to accept that not all metrics of business success are expressible through numbers. 

On the other hand, human resources should learn to quantify and qualify strategic interests. This department has often been viewed as a business’s ‘cost center,’ requiring a hefty budget to do its tasks. Including more analytics into its decision-making process can go a long way in providing better-qualified individuals for the business and paying them right. 

However, mutual understanding doesn’t essentially mean fielding two departments. The scale of a business may or may not allow for an expansive collaboration. Owners can still take these key lessons to heart while working within their limitations by getting a good idea of their businesses’ size based on the number of employees.

• Micro-Enterprise – less than ten employees

• Small Enterprise – between 10 and 49 employees

• Medium-Sized Enterprise – between 50 and 249 employees

• Large Enterprise – 250 employees and above

Take note that the first three categories fall under one group, known as small and medium-sized enterprises (SMEs). Experts say putting payroll under human resources control is a more sensible course of action among SMEs. This is because these businesses don’t experience as much attrition or turnover as large corporations, so payroll should invest in the human touch to help them be more efficient.

Meanwhile, large enterprises have to keep track of many people and constantly make reports to ensure they aren’t breaking the bank. With attrition or turnover more of a concern for them, placing payroll under finance control is more reasonable. Updating every employee’s profile in the company will be a tall order; all the more reasons speed and accuracy are of the essence.

Regardless of the size, all businesses can agree on one crucial tip: getting payroll processing software to help out. Modern technology has made software that enables even small firms to handle the myriad of payroll duties—maximized accuracy for a reduced effort. Naturally, what it intends to do with the data it gathers is the business’s prerogative.

Also read: 8 Best Payroll Software To Try In 2021

Also read: Payroll Success For Small Business

Conclusion

As to what department actually handles payroll, there’s no straight answer. The financial and human resource aspects of paying employees exist in two distinct departments that must work together to create a reliable system. However, payrolls can still work if a business is limited to fielding only one department, provided that it understands the difference between both worlds.

Having an efficient and reliable payroll system will also ensure that employees receive the correct pay stubs.