Why a Payroll Department Structure Is Critical for Business Success

By Marianne Chrisos - Last Updated on January 7, 2020
Why a Payroll Department Structure Is Critical for Business Success

There’s a reason that businesses are often broken into departments – finance, accounting, marketing, sales, HR, and others. Smaller pieces are easier to manage and organize – it’s easier to focus the attention and goals of smaller groups and has managers that report up to leadership to make sure everyone is tracking towards the overall business goals.

While each department has an important function, HR and payroll have a special role and responsibilities that can often require a more deliberate level of organization, structure, and regulation. This is particularly true to for small businesses, who sometimes have fewer resources and more to risk. Finance company Fundera notes, “6.04 million small businesses have employees, meaning 20% of all small businesses have at least one paid employee. Small businesses comprise 99.7% of all firms with paid employees.” Having a well-organized payroll department structure is part of taking care of your employees and also your business.

Why HR organizational structure matters

HR organizational structure is important to organizations. Even small businesses need to have the structure in place to keep human resources functional – employees need a resource to ask questions, to lodge complaints, and to assist with legal issues like W2s, taxes, and payroll.

An organized informed HR department is also important on the employer side to ensure compliance, work with the finance team to keep payroll organized and in line with budget and work to hire and retain talent.

Having an organization and structure in the human resource department of your business is key to maintaining stability and future feasibility.

What to understand about the payroll department structure

Payroll is comprised of several parts and it’s important to keep the whole system organized in order to run well and keep employers compliant and employees happy.  Here are the things to keep in mind about the payroll department structure.

  • Timekeeping: Timekeeping is an important part of the payroll process, as it calculates the time worked, including overtime. This not only requires a system of organization to collect time logs but also to verify and double check records to ensure accuracy.
  • Processing: The actual processing system is often software or that can take all relevant information and produce an accurate paycheck for employees. This includes hourly or salary wages, any applicable overtime, back pay, pay raises, reimbursements for travel and other employee expenses, holiday pay, sick and vacation time, retirement contributions, and all other paycheck related expenses. The processing of paychecks is also when the money is deposited into an employee’s bank account or when a check is printed and handed off the employee.
  • Records and files: Organizations have a legal obligation to keep records and employee data for three years, according to federal law. This includes time cards, employee contracts, offer letters, and other wage-related files. These records are also crucial in addressing manager and employee inquiries, as well as government agencies who need to work with an organization to garnish employee wages for issues like back taxes or child support. addresses internal payroll inquiries from managers, supervisors, and employees.
  • Benefits: HR and payroll go hand in hand, which is why payroll knowledge of benefits is important. In addition to calculating hours and salary, PTO deductions, 401k employee contributions, healthcare benefit deductions like medical, dental, vision, and health savings account or flexible spending accounts all need to be factored into paycheck running and a critical part of both employee retention and employer compliance.
  • Accounting and compliance: In addition to benefit deductions, other deductions are regularly automatically taken from paychecks, including payroll taxes like state and federal taxes, Medicare, workers compensation, social security deductions, and unemployment insurance. There is also a reconciliation issue that requires paychecks to be in line with other business budgeting and expenses, which is often handled by an accountant or accounting department.

While you don’t need to be a payroll expert to be a successful small business owner, it’s vital to understand the process and significance of payroll to your organization if you have paid employees. Having all of these pieces are crucial inaccurate and timely payroll. Methodical payroll processes, then, are important to execute the best possible payroll procedure. An organized process and systematized payroll department structure help to create a strong financial foundation for any organization.

Payroll is an important business function that ensures employee morale, business reputation, and legal compliance. Most payroll is handled by a 3rd party payroll provider, contracting accountant, or internal HR department, but no matter who is handling the process, a rigorously organized process is necessary. One of the strongest assets to any payroll department structure is a quality payroll system. Between understanding all of the pieces of a successful payroll process and using a reputable payroll partner or software system, you’re much more likely to have a successful payroll every time.

Marianne Chrisos | Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a company near Dallas and contributing writer around the internet. She earned her master's degree in Writing and Publishing from DePaul University in Chicago and has worked in publishing, advertising, digital marketing, and content strategy.

Marianne Chrisos | Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a c...

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