Should Payroll Be Under Finance?

Every organization is different. If you were to ask small and mid-sized companies “Who owns payroll at your organization?”, you’re bound to get answers all over the map.

In fact, in Namely’s recent research, we found that 34 percent of companies say that HR owns payroll; 25 percent say that finance owns payroll; 35 percent say a separate payroll department owns payroll; and 6 percent completely outsource payroll. Needless to say, there is no standard for where payroll should fall within a company.

So who should own payroll at your organization? To help you decide, let’s take a look at the advantages of having payroll fall under finance.

Finance Teams are Detail-Oriented

Since they are so number-oriented, finance teams are known for being especially meticulous. This helps them have a deep understanding of tax laws and financial statements. Being so detail-focused is key to paying employees properly and on time, identifying payroll errors and addressing them immediately, and ultimately, staying compliant. To avoid financial risk, whoever owns payroll at an organization must also meticulously conduct audits on a regular basis–which is right in a finance team’s wheelhouse.

Payroll & Tax Compliance is Complex

Of course, staying compliant is a top priority for HR teams. However, payroll and tax compliance is very technical and complex. When handling payroll, organizations must adhere to federal, state, and local regulations. If they violate any, they can face extremely costly penalties and fines. Violations may include misclassifying employees, not paying them properly for overtime, withholding the right amount of taxes from their wages, and breaching federal laws like the Equal Pay Act. 

That’s why it’s critical for whoever runs payroll to be audit experts who understand the legal risks and processes behind payroll and tax compliance–which for many organizations is their finance team.

Paying Employees is a Financial Cost

When looking at it from a financial perspective, payroll is one of the largest expenses for a company. In fact, paying employees accounts for 68 percent of a company’s total overhead.

Since it is such a significant expense, many companies find that it makes the most sense for their finance teams to oversee payroll. When they own payroll processing, finance teams can constantly keep a close eye on their organization's overall budget and spend by monitoring how much they are paying their employees. This also enables them to forecast workforce costs easily and see how it impacts their company’s bottom line.

HR Teams Can Focus on Other Initiatives

From onboarding and offboarding to benefits enrollment and performance reviews, HR teams have a ton on their plate. When you add payroll processing to their already endless to-do lists, they aren’t able to spend as much time on other important HR tasks. This is especially true for smaller HR teams. Paying employees, conducting audits, and keeping an eye out for payroll errors are all time-consuming responsibilities that have to be done–which means sometimes initiatives like employee engagement and recognition take the back burner, when they really should be a top priority.

When finance teams own payroll, HR has more time to plan strategic initiatives, survey employees for feedback, focus on retention, analyze benchmarks to make sure that they’re staying competitive in the job market, and more.

Still unsure if payroll should fall under finance or HR at your company? Check out our latest guide.