In most organizations, we’ve found that the role global payroll plays historically falls under either finance or human resources (or both). Its position, ultimately, tends to shift with the size of the company and the type of industry.
Below, we highlight some of the main factors that can determine the placement of payroll:
- Type of Industry: one of the key factors that influences the placement of payroll. Retail industries are inclined to place payroll in the finance department.
- Size of the Organization: larger operations are more complicated in organizational structure and, therefore, in infrastructure. This contributes heavily in making the decision. The size of an organization is not only considered in terms of employee count but in the size of the HR and finance teams.
- Culture: another critical factor to determine the placement of payroll in an organization is culture. Depending on employee demographics, you’ll need to decide if HR or finance can best serve the employees’ payroll.
Please note that there are other considerations beyond the ones noted above. HR, finance and shared services are all logical places to place payroll in an organization. Leaders need to analyze what is the best and right place to not only serve its employees, but also to manage data and compliance.
Human Resources and Finance: Their Stakes in Payroll
The arguments for keeping global payroll in either department are identified below:
HR point of view
- The majority of the data that payroll requires is generated by HR. Therefore, HR is in a better position to understand the data.
- HR is closely acquainted with employees and has resources to engage with employees.
- HR is in the ideal position to monitor labor and employment laws, as this is a core part of their existing responsibilities.
- HR has relationships with the external vendors who provide the payroll data that is required for processing.
Finance point of view
- Payroll is one of the biggest profit & loss (P&L) line items on companies’ books, and finance understands the accounting general ledger (GL) and P&L to a greater extent.
- HR does not fully grasp GL, accounting and P&L to the level that finance does. Therefore, this department is in a better position to provide those resources.
- Finance is in the ideal position to monitor tax compliance and legal issues that arise from payroll.
- Finance is in a better position to apply audit and SOX controls to ensure compliance.
In the end, payroll cannot be successful without involvement from both departments. A certain level of collaboration is needed in every situation, despite where global payroll is serviced in an organization.
Shared Services Model
Over the past few years, we’ve seen a trend in creating shared services organizations, in which human resources and finance departments both have oversight into payroll operations. In these circumstances, HR dictates the employee data treatment, and finance dictates the financial controls, reconciliations and tax reporting. This allows each team to concentrate on the specific areas they excel in and come together with an improved payroll process because of it. Since payroll departments deal with:
- Data from HR
- Controls defined by finance
- Legal issues as wage attachments
- Tax compliance
An organization could arguably make the decision to have an independent payroll function under shared services with oversight from HR and finance. But, data and compliance should not be the final factors in determining the placement of payroll. Organizations must also look at the company footprint, how it operates and its global management hierarchy. Many companies have only a few employees in some of the countries under its footprint, and as a result, may not have a large HR or finance presence. This will dictate a regional approach to management, even in shared services environments.
When making a decision about the placement of your payroll department, consider the following points:
- Organizational footprint
- Management hierarchy
- Number of employees in different countries
- Languages and culture
- Where to obtain information on payroll compliance and tax knowledge for each country and location
- In-house, outsourced and managed services
Key Considerations for Your Global Payroll Strategy
You shouldn’t make an arbitrarily decision to place your payroll department in HR, finance or shared services. To put together a comprehensive global payroll strategy or to talk about your payroll processes, please contact our team of professionals: