WHY PAYROLL NEEDS TO BE PART OF FINANCE AND NOT HR

To start with, if payroll works, is effective and achieves everything it needs to, then wherever it currently sits – leave it alone!

Don’t play with something that works!

NZPPA’s position on this age-old question is that if your business is deciding where payroll should sit it should always go under Finance as payroll is a function of accounting.

NZPPA regularly sees the payroll function becoming a sort of “pass the parcel” around the organisation depending on who is running it, HR or Finance.

In New Zealand, there are more people involved in payroll than in HR. This is because in any business, if they have staff, someone is needed to pay them (whether they have one employee or ten thousand).  As a business gets larger with more staff, this is when it becomes possible to justify having a specific position to provide HR to the business (how that support is provided depends on the needs of the business).  For larger businesses within New Zealand, this is when you may find payroll does not sit under Finance but HR and hence this is where NZPPA sees the problem because payroll is not a function of HR but of accounting.

So why should payroll sit under and report to Finance?

  • Payroll manages labour costs which is one of the largest costs a business has and this needs to be under the control of professionals that understand the organisation’s overall financial management.
  • Payroll is about “money”, and to be successful it’s about paying employees correctly and on time.
  • Payroll is not about people. It is not there to provide advice or support to employees as payroll personnel are not financial advisors.
  • Payroll should not be talking to employees directly about their pay-related issues unless requested to do so by a manager as it may undermine management and put the employer at risk.
  • Payroll acts as the employer’s representative and does not and should not act on behalf of an employee, especially when dealing with government agencies and departments.
  • Payroll includes a range of legislation that is totally foreign to HR such as tax.
  • Payroll is about payments and calculations defined in employment legislation and HR has little understanding of this in relation to how it is conducted in payroll.
  • Payroll interfaces with systems such as T&A, job costing and the financial system that are not HR’s areas of understanding.
  • HR does not understand how to do financial analysis for legislative and agreed payments made to an employee so that the business clearly understands what is will cost today, tomorrow, in years to come (if the employee stays) and on termination.
  • Payroll is run on timeframes and deadlines that must be adhered to so that employees are paid, while also following defined procedures and processes.  HR lacks an understanding of this area and its importance to payroll.
  • HR does not have the skills to appreciate the special focus on compliance that payroll must have in terms of money, the cost involved if it gets it wrong and the importance of minimising the ongoing risk to the business in terms of tax and employment legislation (especially the Holidays Act).
  • HR in general does not have the technical or specialist skills to understand the requirements of a payroll system in regard to its selection, setup and configuration, maintenance, reporting and how it interfaces with other financial and related systems.

In NZPPA’s experience when payroll sits under or is managed by HR, the essential payroll skills are not being developed, encouraged or supported. These include:

  • Payroll practitioners relying on the payroll system without understanding what the system is actually doing.
  • Payroll practitioners cannot do manual calculations even at a basic level to check and confirm and to explain what payments the system has made to an employee and to show how payroll is meeting legislative requirements.
  • Payroll practitioners lose basic common payroll sense. They do not question anything and everything that is different and which might need to be looked at before paying employees, while payroll is being processed or even after an employee has been paid (the overall end-to-end payroll process).
  • Payroll staff are dragged into general HR activities when the focus should be on ensuring employees are paid correctly and on time while also reducing any potential non-compliance risk to the business.

Overall, when payroll is under HR, NZPPA is seeing the dumbing down of the skills required to run an effective payroll.  There should always be ongoing effective communication between HR and payroll, but that is not a valid reason for why payroll has to sit with HR.  

So in conclusion, NZPPA’s view is that if a decision is needed on where payroll should sit within your business, then it should always be with Finance.  We encourage all finance managers to actively reassess if payroll is currently sitting under HR. It’s important to review whether it would be more suited to sit under Finance based on the need for effective financial management of one of the largest costs to the business, the risk to the business if it’s not run correctly and the requirement for payroll practitioners to have leadership from like-minded professionals.

NZPPA supporting payroll since 2007!

Leave a Reply

Your email address will not be published. Required fields are marked *

Name *