Who Handles Payroll In a Company? Finance or HR?

I’ve been advising business for years now. I've seen firsthand the crucial role that payroll plays in any company's operations. But the million-dollar question is: who handles payroll in a company? Is it the responsibility of Human Resources (HR) or the Finance department? 

That's a question that has sparked many debates in boardrooms and coffee breaks alike.

In this blog post, we'll dive into the strengths of both HR and Finance when it comes to managing payroll. By the end, you'll have a clearer understanding of the different approaches companies can take to ensure their payroll process runs smoothly and efficiently. So, let's get started!

HR's role in payroll

In many companies, HR serves as the frontline for payroll processing. They're the ones who gather and manage crucial employee data, ensuring it's accurate and up-to-date. Think of them as the keepers of the payroll kingdom!

Gathering employee data

HR is responsible for collecting and maintaining a treasure trove of employee information, including salaries, bonuses, overtime, benefits, deductions, and tax withholdings. All of this financial data is essential for calculating accurate paychecks.

Maintaining accurate records

Imagine HR as meticulous record-keepers. They track new hires, terminations, promotions, and changes in compensation or benefits. These records are crucial for ensuring that each paycheck reflects the employee's current status and entitlements.

Ensuring compliance with labor laws

Human resources professionals are also well-versed in labor laws and regulations. They ensure that payroll processing adheres to these legal requirements, protecting both the company and its employees.

Tracking hours worked

Beyond managing employee data, HR often plays a vital role in tracking hours worked, especially for hourly employees. This involves overseeing timekeeping systems, reviewing and approving timesheets, and addressing any discrepancies.

Managing timekeeping systems

Many companies use timekeeping software or systems to track employee hours. Human resources is typically responsible for implementing and managing these systems, ensuring they're user-friendly and accurate.

A man looking at his wristwatch to compute the time he spent working

Approving timesheets

Timesheets are the backbone of payroll processing for hourly employees. HR reviews and approves these records, verifying the accuracy of hours worked and any overtime accrued.

Ensuring accurate data for payroll

Inaccurate timekeeping can lead to payroll errors, which can be costly and time-consuming to fix. HR's diligence in tracking hours worked ensures that the payroll processing team has the correct data to calculate wages.

Addressing payroll concerns

Ever had a question about your paycheck or benefits deduction? Chances are you turned to HR for answers. HR serves as the primary point of contact for employees with payroll-related questions or concerns.

Troubleshooting paycheck issues

Whether it's a missing bonus, an incorrect deduction, or a question about tax withholdings, HR is there to investigate and resolve the issue. They act as a liaison between employees and the payroll processing team.

Communicating with employees

HR is skilled at communicating complex payroll information in a clear and understandable way. They can explain payroll policies, answer employee questions, and provide guidance on tax forms or benefits enrollment.

Maintaining confidentiality

Payroll involves sensitive financial data, and HR understands the importance of confidentiality. They handle employee information with discretion, ensuring that privacy is protected.

Finance and payroll processing

While HR plays a crucial role in gathering and managing employee data, the Finance department takes the reins when it comes to the actual payroll processing. They're the number crunchers who ensure that every dollar is accounted for.

Calculating wages and taxes

Finance professionals are experts in accounting and financial calculations. They use the data provided by HR to calculate gross wages, deductions, and tax withholdings, ensuring that each employee receives the correct net pay.

Handling tax compliance and payments

Payroll compliance is a complex area, with various federal, state, and local regulations to navigate. The Finance department is responsible for staying up-to-date on these laws and ensuring that the company meets all its tax obligations. This includes making timely payments to tax authorities and filing the necessary reports.

Employees standing on the stairs holding papers that say “TAXES”

Overseeing the financial aspects of payroll

Beyond calculations and compliance, Finance also oversees the financial aspects of payroll. This includes managing the payroll budget, reconciling payroll accounts, and ensuring that payroll expenses are accurately recorded in the company's financial statements.

Safeguarding employee data

With so much sensitive financial data involved in payroll processing, data security is a top priority. The Finance department plays a crucial role in protecting this information from unauthorized access or disclosure.

Implementing security controls

Finance departments implement various security controls to safeguard employee data. These might include encryption, access restrictions, and regular security audits.

Complying with data protection regulations

Various laws and regulations govern the handling of employee financial data, such as the Fair Labor Standards Act (FLSA) and the Gramm-Leach-Bliley Act (GLBA). Finance professionals ensure that the company complies with these regulations, protecting both the company and its employees from legal and financial risks.

Maintaining confidentiality

Just like HR, the Finance department understands the importance of confidentiality. They handle employee financial data with the utmost care, ensuring that it's only accessible to authorized personnel.

Payroll accounting and reporting

Once wages and taxes have been calculated, the Finance department steps in to record these transactions in the company's accounting system. This ensures that payroll expenses are accurately tracked and accounted for.

Recording payroll transactions

Finance professionals use specialized accounting software to record payroll transactions, including wages, taxes, deductions, and employer contributions. These records are essential for maintaining accurate financial statements.

Generating payroll reports

Finance departments generate a variety of payroll reports for management. These reports provide insights into labor costs, overtime trends, and other key metrics that can inform business decisions.

Ensuring financial accuracy

Accurate accounting is essential for any business, and payroll is no exception. Finance professionals carefully reconcile payroll accounts, ensuring that all transactions are recorded correctly and that the company's financial statements are accurate.

A person computing the company financials

Working together for smooth payroll

Now, you might be thinking, "Okay, I get it. HR and Finance both play a role, but who ultimately handles payroll?" In many companies, payroll processing is a collaborative effort, requiring seamless coordination between both departments.

Sharing information and expertise

HR and Finance have unique strengths that complement each other when it comes to payroll. HR brings its expertise in employee data management, while Finance brings its financial acumen. By sharing information and working together, they can ensure that payroll runs like a well-oiled machine.

Communicating effectively

Clear communication is key to successful collaboration. HR and Finance need to establish open channels of communication to discuss payroll schedules, changes in employee data, and any potential issues that arise. Regular meetings or check-ins can help to keep both departments on the same page.

Streamlining processes

By working together, HR and Finance can streamline payroll processing, making it more efficient and less prone to errors. This might involve automating certain tasks, establishing clear workflows, or implementing new technologies to improve data accuracy and accessibility.

Payroll in small vs. large companies

The question of who handles payroll can vary depending on a company's size and structure. In smaller companies, a single HR professional might be responsible for the entire payroll process, from collecting employee data to calculating wages and taxes.

The role of a dedicated HR professional

In a small business setting, an HR generalist often wears multiple hats. They might handle recruiting, onboarding, benefits administration, and, yes, even payroll processing. This can be a cost-effective solution for small businesses with limited resources.

The need for specialized payroll expertise

As companies grow, their payroll needs become more complex. Larger companies often have dedicated payroll departments staffed with professionals who specialize in payroll processing, tax compliance, and reporting. This level of expertise can be invaluable in ensuring accuracy, efficiency, and compliance with ever-changing regulations.

A person holding US dollar bills

Who handles payroll in a company? 

By now, you might already have an idea who handles payroll in a company. I have already laid out some basic information you need to know. There's no one-size-fits-all answer, as the best approach will depend on several factors.

Factors to consider

  • Company size: Smaller companies might be able to get by with HR managing payroll, while larger companies might need a dedicated payroll department.

  • Existing departmental structures: If your HR and Finance departments are already well-established, it might make sense to assign payroll to the department with the most relevant expertise and resources.

  • Need for specialized payroll expertise: If your company has complex payroll needs, such as multiple pay schedules, international employees, or unique compensation structures, you might need to hire a dedicated payroll professional or outsource payroll to a third-party provider.

Making an informed decision

Ultimately, the decision of who handles payroll should be based on what's best for your company. By carefully considering your specific needs and resources, you can create a payroll process that's efficient, accurate, and compliant with all applicable laws and regulations.

And remember, as a business consultant, I'm always here to offer guidance and support as you navigate the complexities of payroll management.

The takeaway

Both HR and Finance bring unique strengths to the table, and the ideal approach often involves a collaborative effort between both departments. 

HR excels at managing employee data, tracking hours worked, and addressing payroll concerns. Finance handles the financial aspects of payroll processing, ensuring accuracy, compliance, and security. Ultimately, the decision of who handles payroll in a company depends on your specific needs and resources. 

Smaller companies might lean on HR's expertise, while larger ones might have dedicated payroll teams. The key is to choose a system that works best for you and ensures that your employees are paid accurately and on time.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}