Payroll Processing - HR or Finance Function

Payroll function is very important for both the employees and the employer. For the employee, it is a mark of the value that the organization assigns to him, while for the organization, it is the reward given to the employee for his competence and loyalty. Organizations have their own reasons for assigning this critical function to either their HR department or to their Finance department. In this article, we shall explore some of the merits and demerits of both, and assess if one function is better suited to handle payroll than the other.

Payroll processing is a complex computational process that involves using Salary, Statutory, Income Tax and Legal implications to organize a set of pay related information in such a manner as to arrive at the amount to be paid to each employee as the reflection of his/her worth in the organization.

When organizations are confronted with the decision of assigning payroll to HR or Finance, usually availability of expertise is a key factor in determining the outcome.  However, when the expertise is available in both the functions, then the question is whether the organization identifies payroll more as a motivator or as a routine mechanism.

One of the primary responsibilities of HR is to maintain employee confidentiality and it is the better custodian of confidential data in the organization. And salary data of employees is one of the most confidential data, as it is a measure of the employees’ worth in the organization. Payroll is also closely related to employees’ satisfaction or grievance, and HR, by the nature of its duties, is better equipped to handle the queries with empathy and understanding.

HR also plays a critical role in fixing salaries of employees while joining and at the time of revision. The holistic understanding of the complex interface of grades, levels, work experience and performance in deciding an employee’s salary is better understood by HR. And the input for all this is provided by the Payroll software or application. Likewise computing of performance related pay, bonus or revisions would also require the backing of the existing payroll and making permutations and combinations to decide the perfect mix. The other area of expertise is the compliance under Labour laws and Statutory laws.

However, a critical area of compliance where Finance might have a better understanding is tax computation. Tax planning support, computation, deduction advice and issuing of certificates is a domain of Finance function. In addition, Finance also manages loans and advances.

Beyond these tasks, Finance has better control in ensuring the accuracy of payroll data, as well as a better idea of cash to cash cycles in managing payouts and disbursal. Finance function is also known traditionally to possess more efficiency when it comes to managing complex sets of data.

From the management’s perspective, better financial perspective can be provided by Finance in the management of payroll data, while HR can use the same data for planning for resources as well as clarifying doubts of employees. Considering all this, a partnership in payroll processing would greatly benefit the organization. While HR can take on the role of an input provider and an output checker, Finance needs to take responsibility for payroll processing and disbursal. Thus the errors relating to input data, as well as those of process inefficiency can be avoided.