Industry experts weigh in on the age-old question of where the payroll function is best managed within a company
It doesn’t matter where payroll is located, as long as you make sure employees are the first priority, says Len Haraburda, the general manager of Canada Pacific Railway’s human resources service centre.
“The key thing is it’s not a question of where does it reside, it's have you set up an optimal structure for an efficient, effective, seamless process?” says Haraburda, whose payroll includes about 17,500 employees. “Can you take care of an individual right from a new hire until the day they separate from the organization?”
Prior to joining CPR, Haraburda worked as part of the payroll group at the Alberta Government Telephones Commission, now known as Telus. While he was there, he recognized a disconnect between payroll personnel and HR personnel.
“A big part was that we just weren't talking to the front-end personnel HR group and that’s when I made my first pitch to say, ‘Why don’t we put them together?’” he says.
The change took several months, but everyone was happy with the results.
When CPR was looking to create an HR service centre, they turned to Haraburda.
“In (the HR service centre), we've got a group called employee services, which really is our face to the employee,” he says. “They’ve got a single point of contact. So, if you’re any employee, you only have to remember one number.”
Communication is key
Within the service centre, there is a group of employees responsible for processing pay and ensuring the finances are in order. The other group — employee services — deals directly with the employees at CPR on an individual basis.
“Everyone knows what's going on and if there are ever any issues, it's clear communications, it’s quick because (it’s) co-located,” he says. “It just makes a lot of sense.”
The entire group is located under the HR department to keep all the employees in one group.
“But that whole group could reside under the finance department,” he says. “It's just getting that optimal structure that creates a very efficient and effective process that's going to give you products and services.”
While payroll is now an outsourced function for the North American division of TUI Travel, the global travel and tourism company’s head of HR, Sean Madian, echoes Haraburda’s thoughts.
Because payroll is a cash transfer function, accounting has to be involved in the process, says the Seattle-based Madian, who has about 350 employees on his payroll in Canada and the United States. However, because of the complexity and the multiple touch points with employees, the face of payroll should be HR working in a very close partnership with accounting, Madian says.
Small companies, start-ups or any organization where cash management is a challenge will struggle when removing the payroll function from directly reporting to the finance department, he says.
“The biggest risk, particularly in a small business with limited accounting controls, is that you have substantial cash-flow impacts without finance and accounting having good visibility for them,” Madian says. “You've got to set up your finance and accounting team to be successful by ensuring that they've got visibility to what is happening in payroll so they don't have any surprises.”
The payroll personality
One of the biggest concerns a company might need to consider is the personalities of payroll professionals compared to HR professionals and finance employees.
“That’s the biggest part of it,” says Larry White, director of payroll training with the American Payroll Association. “It’s like two opposites.”
Payroll personality types align much better with finance because they have the same mindset and same focus, White says. When you put payroll under HR, there are contrasting personality types trying to work together which can create issues.
“HR personalities have a tendency to be more engulfed with the individuals — and they should be. This is what they’re all about: they’re givers, they’re helpers,” he says. “Whereas with payroll, it’s more of a regulatory type of a personality.”
However, the recent recession may have changed things, White says.
‘Employee services’ a trend
In the past few years, White has noticed just what Madian and Haraburda have suggested — a merging of the payroll and HR functions.
While combining the two departments may save money, it could cause problems, he says.
“We’re getting some of those people in our payroll classes because they have come from an HR background,” he says. “Now, they’ve been given payroll and… they’re in trouble because they need to know more about how payroll functions in order to manage those people.”
Measuring changes
Before making any changes to the payroll function, employers need to develop a way to measure how effective the changes are, Haraburda says.
“You have to be able to measure the process,” he says. “One of the first things I would do is take a look at your error rates.”
If a company takes note of its error rates before any changes to the payroll function and continues to do so throughout the adjustment, it will be able to determine whether or not the changes were effective, Haraburda says.
“If you have the two within the same management structure within the same department, you then have the authority to say we have some problems, let's get these people paid right first and then let's take a look at the front end process and modify it so that we don’t have these errors coming through,” he says.
It makes sense to put payroll in HR because payroll is essentially providing a service to employees, but there has to be a strong relationship with finance, Madian says.
“At the end of the day, it’s a huge amount of money that's moving from one place to another and accounting is ultimately responsible for that,” he says. “But if you think about what is sitting behind that and the people that are impacted, then it gets you back down to people, which gets you back to human resources.”
Creating a central employee services function may be the best solution because employees will appreciate always turning to the same resource, Madian adds.
“Having a single point of contact where employees can get all the information they need without having to go to multiple sources improves that employee experience,” he says.
Creating an atmosphere which demonstrates how an employer values its employees’ time will pay off in terms of production and retention, Madian says.
“There is no more efficient way to upset people than to fowl up their paycheque,” he says.
