The debate on payroll as part of HR or accounting is far from settled as both sides argue with valid points. Even the Telegraph is divided where to put payroll, giving equal number of reasons when payroll is an HR or a Finance responsibility. Congruent to this debate is the fact that SaaS vendors are just as confused. Payroll management software is sometimes part of accounting software or HR management solution.
Unless you’re getting an ERP, which encompasses all business processes including sales, marketing, accounting, human resource and purchasing, getting the best payroll management software is almost a tossup between getting an accounting software or HR management software if you don’t have any of these solutions yet.
Indeed, when you browse for payroll management solutions, you either look around accounting or HR management categories. In both platforms, payroll management features the same set tools, such as:
- employment contract management
- wage calculators
- deductions and benefits management
- tax management
- regulatory reporting tools
The irony is, payroll is one of the most critical aspects of business, yet it’s also one with the most unclear place even in well structured organizations. In a LinkedIn survey by Advanced Business Solutions respondents–a mix of HR and accounting professionals–were just as divided as water and oil when asked which department should handle payroll.
What’s clear though is that it’s a case of perspective. Accountants will always say payroll is operational cost, while HR will always say it’s human resource. How you see payroll then defines where this function falls under. On the same breadth where you access payroll management software, from accounting of HR management solution, is a matter of choice.
To help you decide where to put payroll management, let’s lay down three reasons for each side when payroll fits in.
Why payroll should be in HR management
Among its key benefits, payroll management software ensures accurate and timely delivery of payroll. Taxes are deducted properly, benefits and leaves are computed in and each employee gets paid on schedule. While this looks like a business efficiency case, it’s also much an employee welfare issue. Getting paid on time and properly boosts employee morale and keeps management-staff relationship healthy. In such case, payroll is every inch an HR endeavor for three reasons:
1. Payroll is about management-staff relationship
Beyond the associated cost, payroll is the sacred contract between the employee and company. It cannot be treated as any other cost because it impacts this relationship and can affect company morale.
It makes sense that the department with training on employee-management relationships handles payroll: HR. The HR manager has, by training and in general, more empathy in dealing with payroll. It understands the time-sensitivity factor in payroll. Any delay can cause resentment and even fears that destabilize performances, hence, company productivity.
In contrast, accounting is trained to manage costs, which seems counter-intuitive when applied to payroll management as a relationship issue. Likewise, when pressed with pay issues, HR can resolve employee issues better that mutually appeases both management and staff. Accounting is essentially part of management.
Because of the huge responsibility of keeping a healthy relationship between employees and management, and that payroll is central to this, HR should handle payroll.
2. Payroll processes are HR tasks
Payroll is computed almost entirely through HR tasks. Take for instance onboarding, regularization, sick leaves, benefits and promotions; they all impact on payroll. On the other hand, accounting processes only matter when there are deductions as per advances or unapproved expenses incurred by the employee. It makes more sense to put payroll under HR when most of the workflows are done by this department.
3. Payroll contains confidential employee data
HR professionals are attuned to protecting sensitive employee data, such as, health records, past work affairs and salary. Payroll should be kept from prying eyes to avoid employee-employee comparison, which can lead to demoralization (of the one with the lower payscale). On this note, payroll is better managed by HR to avoid leakage.
Many accountants will argue that they are more adept at computing costs. Yes, but this is the quantitative side of payroll and the HR staff can be trained on this aspect. What’s more important is the sensibility of HR to protect employee records. Among all departments, HR is the only unit that arguably pro-employee.
Why payroll should be in accounting system
There are instances when payroll is a better fit in accounting. Here are three of such cases:
1. You’re using an accounting software
Most accounting solutions offer a payroll automation module for additional charges. If you’re already using an accounting software, it’s more cost-effective to simply extend the functionality than set up another system just for payroll management. In cases that the accounting software doesn’t feature payroll automation, it can likely integrate with a third-party app or you can customize your own app via API. All these approaches are still faster and less costlys than getting an HR management system.
2. There’s no HR
If you don’t have an HR team obviously there’s no point getting an HR management system for payroll automation. Many small businesses lack real HR personnel; someone from accounting is usually assigned to the payroll.
3. HR is too small
Even if you have an HR team, if this means one or two persons doing HR tasks, it’s more cost-effective to set up payroll management in an accounting solution. You’ll have more people benefiting from an accounting software than the two persons using an HR software with payroll tools.
Why not get an ERP system?
Large enterprises turn to ERP systems to automate, streamline, centralize and manage all business processes in one platform. These include payroll, HR workflows and accounting. In essence, ERP solutions address this debate where to put payroll. If you can afford an ERP system and have an I.T. team to manage it, this is the best option so your payroll is smoothly integrated in both accounting and HR platforms.
In the study by Advanced Business Solutions we mentioned above, 15% of HR and accounting professionals believe payroll should be shared by both departments. They argue that HR can do the employee management tasks in payroll, while accounting can cover the costing side. In this way, payroll is a shared task.
Another option is to outsource payroll. This leaves both HR and accounting to focus on their core deliverables. But this strategy poses risk, mainly putting sensitive information in third party’s hands.
The advent of cloud solutions makes the decision where to put payroll much easier. One of the main benefits of SaaS is integration. That means cloud accounting and HR management solutions can easily integrate with the payroll module in either system, at least in most cases. So, when subscribing to either solution, make sure to check for payroll management integration, either with a third-party app or within the system.
Payroll management is one of the most critical aspects in an organization. It is both the most expensive operating cost and most precious capital. And yes, it’s both the concern of HR and accounting.