Why payroll should be its own organization

Payroll administration is one of the few corporate functions that is found in either finance, human resources, or sometimes a global business-services organization, depending on an organization’s operating model. This inconsistent organizational alignment across various industries and organizations can often influence the types of talent and operational needs an organization has relevant to the function. As a result of such inconsistency, process standardization, talent identification, and career growth have been challenging areas for payroll professionals and organizational leaders.

On the regulatory front, equal-pay legislation is quickly becoming a reality in the United States and abroad due to unsuccessful efforts to bridge gaps in equal-employment opportunities. Given this current regulatory environment, we believe the time is now for payroll to be elevated and separated from HR and finance, giving rise to a new organizational structure that is of equal, if not higher, importance to an organization’s wellbeing.

As an independent function, payroll would be better able to provide accurate and comprehensive data to generate meaningful insights and promote compliance. It also can be a key part of a company’s Environmental, Social, and Governance (ESG) efforts by providing data that can foster pay equity. Timely and accurate payroll is also key to minimizing workers’ financial stress while building trust and enhancing the employee experience.

A standalone payroll function would be able to drive holistic organizational value, process efficiencies, and market growth and would have the potential to become an influential business adviser to management on the company’s strategy and financial health.

Payroll’s connection to HR and finance

At one time, it may have made sense to put payroll under either HR or finance.

HR has the competency to address labor laws and policy; it’s the source of most payroll data; HR handles most employee issues; and HR knows the ins and outs of maintaining employee confidentiality. As for finance, payroll is a business’s biggest cost, so there’s need for accounting knowledge and expertise, as well as monitoring and reporting; finance has the capabilities to apply internal controls for legal and audit compliance; it also has the expertise around taxation issues.

Even today, a misconception remains that payroll is a simple operation. But in fact, payroll has become one of the most complex and highly transactional functions in any organization. It is responsible for handling one of the major expense categories for most companies and interacts with virtually all operating functions within a business.

These complex challenges suggest that an independent payroll—separate from HR and finance—can better influence how decisions are made around corporate plans and the company’s’ future. It can offer important insights into an organization’s financial health, can assist with M&A decisions, and advice on labor decisions

Payroll administration is one of the few corporate functions that is found in either finance, human resources, or sometimes a global business-services organization, depending on an organization’s operating model. This inconsistent organizational alignment across various industries and organizations can often influence the types of talent and operational needs an organization has relevant to the function. As a result of such inconsistency, process standardization, talent identification, and career growth have been challenging areas for payroll professionals and organizational leaders.

On the regulatory front, equal-pay legislation is quickly becoming a reality in the United States and abroad due to unsuccessful efforts to bridge gaps in equal-employment opportunities. Given this current regulatory environment, we believe the time is now for payroll to be elevated and separated from HR and finance, giving rise to a new organizational structure that is of equal, if not higher, importance to an organization’s wellbeing.

As an independent function, payroll would be better able to provide accurate and comprehensive data to generate meaningful insights and promote compliance. It also can be a key part of a company’s Environmental, Social, and Governance (ESG) efforts by providing data that can foster pay equity. Timely and accurate payroll is also key to minimizing workers’ financial stress while building trust and enhancing the employee experience.

A standalone payroll function would be able to drive holistic organizational value, process efficiencies, and market growth and would have the potential to become an influential business adviser to management on the company’s strategy and financial health.

Payroll, the new land of opportunity

As the payroll gains greater scope and visibility and takes a on more strategic role in the business’s operations, it will require professionals with greater skills and expertise. When payroll is part of either HR or finance, the career track for the payroll professional can be limited. On the other hand, a payroll function that is its own organization will be able to attract a higher-level professional and offer a path to the C-suite.

The good news is that people are no longer “falling” into payroll, instead people are proudly and proactively choosing payroll as a career because of the exciting and varied opportunities this industry provides.

According to the World Economic Forum, we are looking at a “reskilling evolution.”² As organizations aim to be more employee-centric and more profitable against rapid change, business leaders are turning to payroll professionals for insights on employee retention and performance. Payroll job descriptions now include more strategic and analytical skill requirements instead of traditional process-driven competencies.

Final thoughts

Today’s payroll departments are addressing business and market complexities and playing a key role in advising management on financial issues, labor concerns, corporate culture, even ESG. Payroll can better fulfill this elevated role when it is separate from HR and finance. An independent payroll team can help organizations ensure compliance with laws and regulations, improve accuracy and transparency, and attract the skilled professionals needed to meet these challenges and provide greater value to the overall organization.

¹Source: Kronos: The Workforce Institute. 2018

²Source: World Economic Forum website, January 9, 2023, “Reskilling Revolution: Preparing 1 billion people for tomorrow’s economy.”