How do HR and Payroll Work Together? - Small business all-in-one POS, HR, Payroll terminal on a desk

How do HR and payroll work together?

Wednesday, December 10, 2014

Every business wants to run efficiently, and the division of labor is an integral method to achieve this goal. However, without the right previsions, too much separation can hamper collaboration and work against your organization's goals.

No specialized area of your business is an island, and it’s important to encourage all sections of your team to work in tandem, so everyone is on the same page, disputes are minimized, and your reputation as a reliable business is kept secure.

Because tension often arises between Human Resources (HR) and payroll, this article will focus on ways in which these two essential components of your team can work together. We’ll also look at the benefits that arise from them doing so, not only for their separate sections, but for your business as a whole.

Let’s first examine each department and what they do.

What is HR?

HR services are responsible for workforce management in your company. The HR department is responsible for:

  • Hiring new employees
  • Discussing employee benefits
  • Enacting raises/bonuses/severance packages
  • Reviewing time off requests
  • Training, motivating employees, and performance reviews
  • Processing various employee paperwork (terminations, staff contact info, making employee work calendars, etc.)

HR is vital as a model of leadership and direction within a company. HR seeks to onboard the best individuals for a job and enable them to work to the best of their ability.

What is payroll?

Payroll services are mainly responsible for employees getting paid consistently, correctly, and reliably. No business owner wants to lose good employees due to late payments, incorrect compensation, or wage disputes. For these reasons, an effective payroll is foundational for your business needs. More responsibilities include:

  • Correctly depositing and reporting taxes
  • Various record keeping (timekeeping, salary equity, etc.)
  • Comparing salary costs to company budget

Where do HR and payroll overlap?

Just from glancing through their descriptions above, it’s evident that the HR department and payroll processing routinely have their job duties intertwined with each other.

Here’s an example: HR hires a new employee. This new employee is hired for a new position constructed by HR, centered around the individual’s training and experience. Additionally, the new hire negotiated a higher wage than HR initially offered them. Furthermore, they’ll start the next day and expect a paycheck in two weeks. Lastly, they opt into your company's 401(k) due to retirement planning.

From that one scenario, HR and payroll need to communicate the following to each other:

  • New employee’s personal/contact information
  • All applicable new hire tax info (all required federal forms filled out)
  • Title of the new position, job code, and job description
  • Confirmation that the offered salary is within the company budget
  • All information pertinent to setting up the new employee on the company’s 401(k)
  • New hire’s preferred form of compensation (direct deposit, check, etc.)

And, all this has to be done promptly and effectively in order for the new hire to receive their first check without any delays. Payrolls commonly work under strict time schedules, so the communication between the two departments needs to occur fluidly.

Both have access to sensitive data that must be kept secured: Both departments also share a common goal of securing their staff's personal information. Company data breaches can cost upwards of millions of dollars, and loss of employees and business is commonly followed after. Therefore, both sections have an incentive to work together to keep employee information safeguarded.

What are the challenges that HR and payroll face working together?

They often have different goals: Payroll is often focused on precision, specifics, and assured accuracy. Conversely, the HR team deals with broader concepts like employee retention, motivation, and promoting a healthy workplace culture. Because of these different goals, the two teams may have trouble adapting each other’s mindsets, terminology, and methods, and ultimately collaboration can suffer.

Often have different reporting methods: In smaller businesses, it’s common for HR and payroll to be the same entity. But as companies grow and become more complicated, it’s often the case that HR and payroll split from each other, and payroll and HR also end up reporting to different departments/individuals. More often than not, payroll typically reports to the finance department. As for HR, it’s common that they report to the company’s chief executive officer, owner, or president. This difference in reporting systems creates another hurdle for collaboration between payroll and HR.

Often have issues collaborating on data: Frequently, Payroll may provide important data on pay equity that can help HR make better decisions on salaries, bonuses, etc. But, without an effective means of communicating this information, money can be continuously lost through labor expenses.

Alternatively, HR garners the crucial employee information that payroll requires to do their jobs effectively. Because of this, payroll may feel like an afterthought when HR doesn’t sufficiently provide the payroll department with all the necessary data. In this situation, payroll has to add more work to their plate searching for this data. Ultimately, they end up having to ask HR for it, a counter efficient circumstance that can be fixed through clear expectations and communication.

How can HR and payroll work better together?

Clearly define roles and responsibilities: Detailing all the different points in which HR is reliant on payroll, and vice versa, can effectively reveal expectations between the two groups. This, in turn, can help define standards of practice between the two parties and make known to each department what they are and are not accountable for.

For example, suppose a company’s payroll department consistently finds themselves getting last minute bonus requests near the holidays, in turn creating unnecessary time sensitive work for payroll. In that case, it could be a good idea for payroll and HR to set up a cutoff date for the granting and reporting of fourth quarter employee bonuses. This makes both departments’ jobs easier, lessens dozens of potential inefficient interactions between them, and creates more straightforward employee guidelines.

Another effective method to designate effective roles/responsibilities between the two groups is to draw up a “Process Map.” These maps help label and illustrate visually all the steps a process may take between HR and payroll, helping the two sections see when they intersect and when they are on their own.

Work together on data standards and sharing data: With HR and payroll both relying on the same set of information, it’s imperative that both groups enter, modify, and remove data the same way. One way to do this is to have a clear set of standards that both groups follow (for example: “Both groups will have employees categorized alphabetically rather than by date hired,” or, “Dates will be entered as xx/xx/xxxx rather than xx/xx/xx”).

Having both groups on the same page with data management, and instilling efficient and clear standards, will decrease time spent correcting, clarifying, and making mistakes due to differences in managing information.

Instill key performance indicators (KPI’s): HR and payroll should create tethered goals together and then keep track of whether or not they are meeting those goals through relevant metrics. This helps both groups feel like a team with a common objective and helps reveal which shared practices are effective.

An example: Both groups decide that all necessary employee info should travel from HR to payroll within one business week upon hiring. Then the average amount of days it takes for HR to complete this task is tracked across a time period decided on by the two groups. Once the time has elapsed, the metric is examined and compared to the goal, and the groups can do what they think best given the results.

Use a software solution for HR and payroll together: A modern solution to the friction between HR and payroll is to bridge the gap and streamline the two branches into one system. Having the two departments share a platform can minimize errors in reporting, cease having to enter data twice between two systems and help lessen in-person trips between the two groups for clarifications and manual overrides.

Furthermore, HR solutions typically provide self-service tools that employees can use to n have their requests heard quicker and replied to by HR promptly. This convenient service can free up time for HR to focus on more conceptual responsibilities, like employee motivation and retention.

As for payroll solutions, a shared system between the two groups means getting necessary information essentially instantaneously, allowing payroll not to be so reliant and reactive to HR. So by joining the two groups into one integrated system, it ironically actually frees payroll to work more independently, efficiently, and seamlessly.


Find a payroll solution that promotes cohesiveness

Regardless of if payroll is a separate department or a part of finance, it’s imperative that HR and payroll work in tandem, seek to understand each other and realize how reliant they are on one another. The level at which these two departments collaborate can drastically affect the success of any business.

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us