Conventional wisdom often assumes a combined payroll/HR system offers companies the best solution to manage people and payroll.
But is this always the case?
It may appear at first that HR and payroll are functionally similar and best catered for by a single information system. Many payroll vendors have expanded their offerings to include some HR functionality over the years. However, on closer examination, HR and payroll have some fundamental differences that pose problems for both the users and vendors of single systems. In this article we`ll examine those issues and explain why there is much to be gained by separating your HR system from your payroll system.
1. The database design of a payroll is modelled around transactions linked to a financial structure. In an HR system, the entity modelled in the database design is the people within the organisation. In a combined payroll/HR solution, the financial structure and need for payroll data security tend to override the human resource requirements. Frustrated HR users revert to spreadsheets that recreate the data duplication issues a single system attempted to eliminate.
2. Combined HR/payrolls are often organised according to the financial structure of the business, which does not always reflect the actual organisational or people structure. HR professionals cannot easily identify or report on groups of people across the entire company, who may be linked by demographics, performance results or training requirements. The ability to easily view all staff within an organisation is essential for evaluating the impact of management decisions on staff metrics.
3. Payroll developers often have an accounting background and are focused on accommodating changing tax regulations. HR functionality is seen as a "nice to have". Increasingly it is being acknowledged that HR management is a specialist field, with specific data management requirements not adequately addressed by vendors whose core business is payroll.
4. HR data is often qualitative and ambiguous. Payroll data by contrast is highly structured. Many payrolls with added HR functionality do not include tools for maintaining data consistency.
5. Executive payrolls often need to be separated or outsourced for privacy. A consolidated view requires multiple reports to be combined before a total picture can be seen.
6. Many companies already have established payrolls. Where the HR system is combined with the payroll, the payroll must be changed to gain HR management capabilities.
7. Where companies make acquisitions or do mergers, it is very disruptive to have to change the payroll in order to provide HR functionality critical to rationalise head count or harmonise pay scales.
8. Increasingly, companies are operating across borders. Few payrolls can manage multi-currency, multi-country regulations on a single payroll. The local payroll vendor better understands the in-country legislative requirements and keeps the software current. HR requires a single database of staff information for consolidated reporting.
9. HR professionals analyse pay data from the perspective of employee productivity, motivation and retention rather than tax compliance. They need to see a complete pay history with derived fields such as total cost of employment not restricted by payroll codes, financial years, or closed periods. Access by HR to the combined database is often limited during monthly payroll processing.
10. People who are not paid by an organisation but still need to be managed and reported on, such as potential recruits, contractors, volunteers or students cannot always be accommodated on the same database.
11. An often-stated downside of two databases instead of one for HR and payroll is data being maintained in two places. But, is this really an issue in practice? There are actually very few mandatory data fields required to pay an employee and minimal overlap between HR and payroll data. Common information between HR and payroll is easily synchronised through integration.
12. Another less well-known benefit of separating HR and payroll databases is that by validating headcount through a monthly import, payroll fraud is easily detected. With scheduled import functionality, data can be captured in one system and reflected in the HR system.
Recently, HR professionals are being asked to add more strategic value to their businesses. This is requiring a holistic view of the organisation and access to information presented from an HR perspective.
HR and payroll information requirements are fundamentally different. Payroll users are usually separate from HR users and use the information quite differently. Ask yourself how one system can provide fully for the needs of both. These days, systems integration is quite seamless and having separate HR and payroll systems offers many advantages. If you are considering your HR systems requirements, consider whether you really need a new payroll system. Are you paying for a payroll with HR when what you really need is comprehensive HR? It may be that a best-of-breed HR solution integrated to your existing payroll(s) provides more compelling ROI and is a more appropriate tool to meet the strategic HR goals of your business.
Brendon Gass is a Director of Absalom Systems South Africa. Absalom Systems develops and implements the SmartHR People Management System, SA`s leading payroll independent human resource system. http://www.absalomsystems.com
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