For several years we’ve operated under the assumption that people leave managers, not companies. Because of that there has been a significant focus on talent development, especially leadership development, as a means to create the best employee experience. However, new studies show that there might be a shift in that sentiment. A Mercer study now suggests that pay has risen to the top. In fact, the number one concern keeping employees up at night is covering monthly expenses. That said, how important does having a well-run, error free payroll process become due to that shift?
This makes the decades old question even more pertinent, which department should Payroll sit in? It is my opinion that hands down, Payroll is a very important part of any Human Resources/People/ Talent department. Human Resources is no longer an administrative order taking function. In addition to the hiring and firing that most people ascribe to Human Resources, that function is now tasked with understanding how they can provide the best employee experience possible in a way that aligns with the strategic direction of the organization. Improving engagement, attracting and retaining top talent, proactively identifying and providing training for skills needed for organizational success and developing those skills are all things that without a second thought sit with Human Resources. But what about things like pay equity, compensation management, and the ever-changing state, federal, and global laws that impact employee’s pay? That is where things start to get a bit murky.
One of the biggest reasons to have Payroll report to Finance or Accounting is to create a separation of duties which helps reduce the risk of fraud and embezzlement. I counter that argument by saying that if someone really wants to commit fraud or embezzlement, they will do so no matter what department they report to. Fraudsters will find a way irrespective of departmental boundaries. I would also argue that some of the biggest payroll risks, creating and paying fake employees, continuing to pay terminated employees, and timecard fraud, are actually better mitigated by having payroll processed and audited by members of the HR department as they would know right away if any of those things were happening. The solution lies in a vigilant, proactive Payroll process and team anchored within Human Resources, with a thorough understanding of the workforce, ready to detect and combat anomalies.
In terms of legal compliance, that is right up Human Resource’s alley. In fact, most third party HRIS and Payroll systems can handle legal changes more expeditiously than an internal resource. Human Resources professionals are already adept at compliance, with some HR teams still fighting the good fight to be seen as more than Compliance Cops. With Payroll sitting in Human Resources, they can move beyond a transactional role and begin to proactively look at salary projections, productivity, workforce planning, and predicting burnout levels. Alongside their Human Resources peers, Payroll can provide strategic insights and data that help the organization make well thought out, data driven decisions.
It’s time to dispel the outdated notion that Payroll is merely a number-crunching function best relegated to Finance or Accounting. The reality of today’s workplace is doesn’t support that model. As the workplace has evolved, the Payroll function now plays a pivotal role in employee satisfaction, engagement, and retention. When we consider the mounting evidence that pay-related concerns are now the biggest worry for employees, the need for a seamless, efficient, and accurate Payroll process becomes indisputable. It’s not just about compliance or transactional duties, it’s about positioning Payroll as a strategic partner in managing the organization’s most important asset – its people. It’s about harnessing Payroll’s unique insights into salary trends, workforce productivity, and potential burnout risks to inform and shape HR’s broader strategies.
The verdict is clear: it’s time to welcome Payroll into the HR fold. This isn’t just a simple shifting of departmental responsibilities, but a strategic move that will unlock Payroll’s potential to drive employee satisfaction, foster a culture of equity, and contribute to the strategic goals of the organization. When you weigh out the pros and cons, this is a win-win proposition for both the employees and the organization. It’s time for a change. It’s time for Payroll to join forces with Human Resources.