Payroll and human resources are two distinct areas of your business. Human resources primarily deals with employee relations, while payroll handles the compensation of employees. Each department has its distinct functions, but they intersect at times -- for example, when an employee is hired or fired, when someone gets a raise and when a worker wants some time off.

HR Functions

HR responsibilities include hiring, promotions, reassignments, salary determination, classifying and grading positions, consultation and coaching of management and employees for conduct and performance problems, company policy development, employee benefits, personnel data maintenance, workers' compensation and employee assistance programs. Your human resources staff should have keen understanding of federal, state and local labor laws. This includes laws pertaining to employment discrimination, equal pay, family and medical leave, the Fair Labor Standards Act, new hire reporting, accommodations for disabled workers and workplace safety.

Payroll Functions

Payroll involves calculating time cards, retroactive pay, commissions, bonuses, severance pay, overtime, salaries, wages, employee reimbursements, holiday pay and benefit time such as vacation, sick and personal days. Payroll also makes deductions from employees’ wages for taxes, wage garnishment, health and life insurance, flexible spending accounts and retirement investments. Payroll works with your accounting department to ensure that wage deductions and other payroll expenses are paid and properly reported. Your payroll staff should have solid understanding of federal, state and local wage and hour and employment tax laws.

For both departments to run smoothly, HR and payroll must work together. When HR hires or terminates an employee, it forwards the necessary paperwork to payroll so the employee can be paid. When employees receive performance reviews, HR sends the respective documents to payroll, which calculates the amounts that employees should be paid going forward. Vacation, sick and leave balances are tracked by both payroll and HR; the information is forwarded to managers and supervisors so they can effectively schedule time off requests.

Strategic Plannings

Companies include both HR and payroll in strategic planning meetings so appropriate goals can be established. Your human resources staff knows how to find the right employees for your business, how to implement change in workplace processes and systems and the training and development tools your employees need to grow. Your payroll staff can provide you with solutions for strengthening security and efficiency. This may include conducting internal audits to reduce the risk of fraud and developing alternatives for paying employees without information technology help in the event of a disaster.


As a small-business owner, you may outsource your payroll and human resources duties to third-party providers. A third-party administrator can help you with employee benefits, such as health insurance and retirement options. In this case, you may employ an on-site person as a liaison between you and the third parties, and this person can be someone your employees can go to for assistance. This liaison also double-checks the third party’s work for errors.