Payroll and Personnel

Slowly but surely the business responsibility for the payroll process is moving away from Finance and into Personnel. However, when asked which of the two areas best suits them, most payroll staff indicate that they prefer to be where they currently are. Does it not matter? Or, are there some principles at stake? Ian Congreave considers the trend and the thinking behind it, and makes his own preferences known.

Most organisations had a payroll department long before they had a personnel department. In a small but growing business, payroll is often handled by the book-keeper or accountant and naturally tends to stay in the finance area even after the business gets to such a size that it decides to separate out the management of employees into a personnel department. When an organisation has established finance and personnel departments, the place that Payroll has in that structure may well be the product of history rather than deliberate organisational strategy. However, when organisations start to question their structures, especially in order to reduce costs and improve efficiency, there is a tendency to move Payroll into the personnel area.

Autonomy

Before considering the strategic reasoning behind this trend, there are a number of issues that have more personal relevance to payroll managers and their staff. An example of this is the autonomy enjoyed by many payroll managers in running their departments. Many accountants are more than happy to leave an effective payroll department to get on with the job and, in any event, may not have the technical expertise to get closely involved anyway. Within the personnel department, a payroll manager is more likely to become an active member of the management team and "enjoy" greater involvement and direction from above.

Closely related to autonomy is the extent to which a payroll manager is likely to get involved in the broader activities of the supervising department. The mainstream work of the finance department requires accountancy qualifications or experience, something payroll managers rarely have. The further consequence of this is that there are few, if any, openings in terms of a career path for payroll staff within the finance area, not least because the qualifications tend to be achieved at the start of an accountancy career.

In contrast, the opportunities for closer involvement in departmental work are much greater in Personnel. Many aspects of personnel work relate to payment rules and the taxation of pay, expenses and benefits and, consequently, many payroll managers are properly drawn into the development of, and changes to, strategies and policies. Similarly, there are more openings in Personnel for payroll staff to move sideways into personnel work, especially where the individual has built up a detailed understanding of payment and taxation policy. Qualifications in Personnel also tend to be achieved during the career rather than in advance.

Conflict

Another distinct issue revolves around the handling of documentation, separate computer systems and the general dependence on Personnel for the authorisation of payments. It is common for Payroll to apply new starter details, or pay increases, or terminations, only after they have been vetted and approved by Personnel. In many cases, details are transcribed onto special documents before they are passed to Payroll, at times with little comprehension of the deadline-driven nature of the payroll process. The two departments often have their own independent computer systems, requiring separate keying. Especially where Payroll sits within the finance area, this combination of close dependence on Personnel for authorisations and the duplication, or at least double-handling, of paperwork are a recipe for conflict. Documents are lost, details are transcribed inaccurately, computer records do not match - and someone is to blame. Such distrust not only creates an unhealthy working environment; it also leads to the development of even greater levels of administration so that the two departments can protect themselves from blame for inaccuracies and omissions.

Integration

The problem of inefficient working is one of the key reasons for the strategic move of the payroll operation into Personnel in some organisations. Not only does this reduce double handling of paperwork, it opens the way for closer integration of both administrative procedures and of the supporting computer systems. Whether the emergence of integrated personnel and payroll computer systems has prompted the integration of the departments, or vice versa, is a moot point. Whichever way round, integration of both the departments and the computer systems opens the way to rationalising administration and reducing staffing levels.

Although some of the companies that have transferred Payroll into Personnel have still kept the payroll department separate from personnel administration, the greatest benefits can be achieved where the staff in the two areas are fully integrated into one enlarged payroll department, responsible equally for personnel administration and payroll processing. This is also good for the staff involved as it broadens the nature of their work and improves job satisfaction.

Another factor that has served to enhance the value of payroll and provide it with a critical role to play within the Personnel function is a further trend in some organisations to limit the role of Personnel to one of policy development and support, with the bulk of the administration being passed down to the line departments. This can result in a loss of control over the application of company policy on pay and benefits, a task that a payroll department located within Personnel is ideally placed to provide. Rather than just accepting any payment instructions that are received from line managers, the payroll office that knows the company's remuneration policy inside-out can effectively enforce the rules and protect them from abuse.

The location of Payroll in Personnel or Finance may also make a statement about the way in which an organisation views its employees. Where Payroll sits alongside an accounts payable department, there is the obvious suggestion that it is, in effect, an invoice processing department which pays employees just as it would any other supplier, with the payslip substituting for the invoice. In this situation, the business may consider Payroll principally in terms of the management of money, as the means of meeting its financial liabilities to its employees. On the other hand, the business may take the view that Payroll is more about people and part of the management of their terms and conditions and, as a result, locate it within Personnel.

Generalisations

Payroll can arguably be located anywhere within a business and still operate effectively. Most payroll staff, when asked, are happy with their current situation, especially if they have never reported in to another business function. The issue of where Payroll should report is one about which many payroll professionals have strong feelings. Many of the points made in this article are generalisations and will not necessarily reflect the personal experience and preferences of individuals working in either the personnel or finance areas.

Nevertheless, the personnel function that has traditionally involved itself with a broad range of activities, including recruitment, training, career development, and remuneration and benefits, now increasingly finds itself with a new discipline. Many personnel managers are now responsible for or closely involved with payroll and employment taxation. There are significant benefits to be gained from thinking about Payroll in terms of people rather than money.