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Is Payroll a Part of HR? Roles, Responsibilities & Best Practices

Businesses often wonder if payroll is a part of HR or finance. Technically speaking, it can be part of both these departments, and in large organizations, a separate payroll department may exist altogether.

In payroll, “Pay” means to pay salary, and “Roll” means a list or a rolled-up piece of parchment. This makes it clear that payroll is primarily about numbers and falls under the purview of the finance department.

However, payroll deals with functions which are parts of both HR and finance departments. Taxation and audits are performed by the finance department. While compliance and data management are handled by the HR department.

This guide clarifies the roles of the HR and finance departments in payroll and provides an actionable strategy for integrating HR and finance to achieve effective payroll management in 2025.

Is Payroll Part of HR?

As mentioned, some payroll functions are managed by the finance department, while HR professionals perform others. Let’s look at the roles of HR and the finance department in managing payroll.

HR’s Role in Payroll

• Manages employee data: HR departments handle employee data, including attendance records, leave balances, time off, and information related to benefits administration. This is one of the essential payroll functions, is data security and confidentiality are gaining traction due to cyberattacks and data privacy regulations.
• Determines salary structures: The HR department plays a pivotal role in outlining an organization’s payroll policies and procedures. HR professionals must design policies that comply with regulations, such as minimum wage and labor laws, among others.
• Assists employees: HR personnel also serve as the primary point of contact for payroll-related queries. Employees typically approach HR to inquire about their payroll-related questions.

Finance’s Role in Payroll

• The finance department manages taxes. It also keeps records and follows best audit practices.
• It also tries to conform to accounting standards like International Financial Reporting Standards (IFRS). Different countries also have their own set of accounting standards, like INDAS for India and GAAP (Generally Accepted Accounting Principles) for the USA.

Collaboration Needed

HR and finance departments must collaborate for effective payroll management, as tasks like managing data and calculating taxes are related. For example, HR professionals would specify salary structures, and finance professionals would calculate taxes based on the different salary heads. Similarly, HR professionals would maintain employee data, and finance department could use that data to identify revenue per employee based on their performance and given salary. To explore this collaboration in detail, check out our full guide on the Responsibilities of HR and Payroll Teams.

How HR and Finance Collaborate on Payroll?

Data Sharing

HR shares information related to attendance, leave, total hours worked, and benefits administration. Based on the given information, the finance department calculates net pay and deductions.

Compliance Management

A Forbes article states that “When asked about their top business objectives, 30% of HR leaders and 28% of finance leaders cited minimizing business and compliance risk“. This finding establishes that HR and finance leaders have the same objectives. HR manages compliance with labor laws, including minimum wages, PF, ESIC, and other similar regulations. On the other hand, finance professionals file taxes, maintain financial records, and ensure error-free tax compliance.

Technology Integration

Some organizations utilize HRMS tools, such as factoHR’s payroll management software, for synchronizing finance and HR workflows. HR and finance professionals will find all employee data in one place, streamlining payroll management. Leaders will be able to access financial reports on the go, as the records are digitally stored on secure cloud centers.

Payroll Processing in HR

Here is a brief overview of the payroll process in the HR department.

• Data collection: HR collects attendance, overtime, leave, and benefits administration-related information.
• Gross salary calculation: Salary components such as basic pay, allowances, bonuses, and other off-cycle payments are calculated by HR.
• Deductions: PFs, TDS, loans, and advances are calculated by the finance department.
• Net pay calculations: Finance professionals also handle gross deductions.
• Disbursement: The finance professionals disburse salaries after calculating gross deductions. They usually transfer payments through direct bank deposits.
• Record-keeping: In this final step, the HR and finance departments work together. Finance professionals manage tax filings, while HR departments keep payslips for record-keeping purposes.

Thus, HR and finance departments collaborate for effective payroll processing.

Conclusion

Payroll is a shared responsibility between the HR department and the finance department. While HR handles employee information, finance professionals manage tax compliance and account audits. The HR department focuses on complying with labor laws, while accountants facilitate tax compliance. Therefore, it is worth repeating that collaboration between HR and finance teams is essential for accurate payroll calculations.

Here is a table that summarizes the key responsibilities of HR and finance departments in payroll management.

Audit your payroll processes today and leverage factoHR’s simple and smart payroll management software for accurate and efficient payroll management.

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