Question

Question #5

Payroll tends to be the hybrid position between Human Resources and Finance.

List 3 ways that payroll interacts with each department. 6 Marks total 1 mark for each listing of how Payroll interacts with HR and/or Finance 1 mark for each explanation of the importance of the interaction

3 ways Payroll Interacts with HR and/or Finance	Importance of interaction	Mark
		/2
		/2
		/2
Total Marks		/6

Answer 1

3 Ways Payroll Interacts with HR and/or Finance	Importance of Interaction
1. Legal Compliances - This is the first and most important way in which payroll interacts with both HR and Finance. There are multiple tax laws which are applicable to employees which may be in respect of tax deductions or addressing and storing important information such as social security numbers. For ensuring such legal compliances a joint effort of all is required. HR and payroll maintain and store the data of employees including salary figures and finance department helps with the financial compliances such as tax deductions.	Here interaction becomes very important because the finance department, for the purpose of calculation of statutory deductions and other tax compliances is solely dependent on the data provided by HR and payroll. If proper co-ordination is not there between these departments, the company might end up facing legal consequences.
2. Salary Disbursement - Again this is another important way in which all of the departments interact. In most organizations the monthly payroll disbursement sheet is prepared with the joint effort of Payroll and HR which is ultimately approved for payment by the finance department.	Every employee expects that they will receive their salary on time and with the right amount. To ensure this, there needs to be proper co-ordination between HR, payroll and Finance. HR and payroll need to timely provide the disbursement sheet to Finance for their approval so that they have sufficient time to process and make the payment on time.
3. Actuarial Valuation - Acturial valuation refers to the valuation of various employee related benefits such as gratuity, short term compensated absences or leave encashment provisions. This is something which is mandated by the accountancy and taxation laws and every organization gets it done from an actuary. Here the leave data, joining date, resigning date etc. relating to employees is provided by the HR whereas the salary amount details are provided by the payroll and Finance is the one which interacts with the actuary to decide on the assumptions to be taken for calculating the provision amounts and also for ultimately posting those provision amounts in their books of accounts.	The provision figures resulting from an acturial valuation are of significant importance in relation to the financial statements. If this amount ends up being wrong there can be severe consequences on the company. This is one area where interaction between the departments is most important because Finance team is completely reliant on the data provide by the HR and payroll team. If the data is wrong, the acturial valuation will end up being wrong. Hence proper controls need to be in place to ensure proper co-ordination among the departments for the acturial process.