The uneasy marriage of payroll and HR

Reviewing the relationship’s history to understand the present and predict the future.
By Gerson Safran
|Canadian HR Reporter|Last Updated: 04/12/2001

The relationship between payroll, HR and finance is a result of an evolutionary process. To understand their present positions in many organizations and possibly predict their future, we have to understand their origins and evolution to date.

Back in the mists of time before computers (as recently as 50 years ago), payroll and HR, then usually called personnel, still existed. The payroll process was much the same as it is today — a wage or salary was calculated based on preset rates affected by various deductions. The key outputs were, as they are today, a regular payment to employees, payroll registers and other reports and journal entries to the general ledger.

The main job of the personnel function was to track time and attendance, with emphasis placed on absenteeism. It was also involved in maintaining employee records, the initial screening of new employees, terminations, miscellaneous other employee-related activities (longevity awards, Christmas parties and summer picnics, disciplinary actions, union grievances) and, of course, involvement in union negotiations.

Unlike the payroll function, which was mainly quantitative, the personnel function was more anecdotal. It needed a home and often became a department in the much larger accounting or finance area. Although personnel often reported to the controller’s office, i.e. accounting, it was an off-to-the-side function. In other cases, the personnel manager reported to the plant manager or to the manager of administration.

Fast-forward 50 years. Personnel is now human resources and is often led by a VP of HR. It has become much more quantitative in its function. What-if analysis, trend studies, compensation management studies and benefits evaluations have all become standard quantitative HR issues, with computer-based systems providing the tools to allow HR staff to do this part of their “new” jobs. These HRMS products also provide either integrated payroll systems or interfaces to outsourced or in-house payrolls.

Over this same 50-year period, the roll of payroll hasn’t changed that much. The calculation of a regular payment to an employee has become significantly more complicated because of legislative requirements, sophisticated wage and salary agreements, a much more mobile society and more detailed accounting requirements, although much of this added complexity is handled by computer-based payroll systems. Payroll still has to ensure that annual or more frequent changes update their systems and work as required.

However, in many organizations the historical divide between payroll and HR still exists, and there is often a de facto hostility between the two functions. HR feels that, with its new computer systems and responsibilities, it is the keeper of all things that are employee-related and that payroll is merely a calculating engine that produces another HR-related output — the cheque — and interfaces to other control systems such as the general ledger.

From payroll’s perspective, HR is still mostly a record-keeping function that is not as critical to the ongoing operation of the organization as is the payment of wages and the creation of key labour and associated inputs to the accounting systems. Payroll knows that it must be in control of key employee data to ensure the correct and timely preparation of salary and wage payments; any delay in getting payroll files updated can cause significant problems.

The historical split between payroll and HR still exists in many organizations, particularly in smaller companies, resulting in issues such as: Should a new employee’s data be entered into HR first and then moved electronically to initialize a payroll file, or vice versa? Linked HRMS and payroll systems have made this “Who’s responsible?” argument moot, but in many cases, the HR/Payroll split still exists, and the decision as to who has primary control of employee data is made based on organizational power or historical job content rather than on efficient work flow requirements.

However, the last decade has seen a significant shift away from independent payroll and HR functions, especially in medium-sized and larger organizations. This has been driven by the growth of multi-plant North American companies and various programs to improve overall efficiency and reduce costs.

The structure that appears to be gaining in acceptance is one of local, i.e. facility-level, HR and payroll departments reporting to a plant manager (or equivalent) for day-to-day management. The plant-level involvement in both HR and payroll is necessary because of the local (province/state) nature of legislation, such as. payroll deductions, health and safety reporting and labour codes.

A corporate-level HR group led by a vice-president has often been established to oversee the more strategic issues. These include ensuring that nomenclature is standardized across the corporation (job classes and descriptions, salary grids, etc.), that company-wide health and safety standards are developed and maintained, that benefits providers are sourced at the corporate level and the like. The corporate group usually has access to a summarized company-wide database of key HR-related information that includes payroll statistics.

Fast-forward another 10 years. Any more and the future gets too fuzzy to discuss. The historical division of control, where it still exists, may likely fade out somewhat over the next decade. The introduction of Web-enabled HR systems will place much of the onus of keeping records updated directly upon the individual employee, i.e. the process will be removed from both HR and payroll.

It’s not difficult to visualize a new employee entering all of his or her basic demographic and personal information on a screen that prompts and edits as the entries are being made and updates multiple systems once all of the data is properly entered. The focus of both the HR and payroll functions should be one of creating efficient workflows that minimize delays, paper and errors and in auditing their system to see that the logic in them operates properly. And, of course, in providing employees with the information needed to make proper decisions in terms of their relationship with the organization. Contemporary HR and payroll systems lend themselves to instituting these types of improvements.

Gerson Safran provides marketing and sales support of HR Systems Strategies Inc., the developers of INFO:HR HRMS. He can be reached at (519) 672-5984 or gerson@aol.com.

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