What is payroll?

Ask ten different people for their definition of payroll and you’ll probably end up with ten very different answers. Not only does the term ‘payroll’ have several different meanings, but personal experience with payroll can lead to very distinct connotations and a variety of interpretations. 

In this introductory chapter of the Lano Payroll Academy, we’ll look at the different meanings and uses of the word ‘payroll’, analyze whether there is a difference in how payroll is defined in HR and accounting, and share some insights on how the term is interpreted by industry leaders.

The term ‘payroll’ can be used to describe different aspects which are related to the process of compensating employees for their work. When people talk about payroll, they can refer to:

• The business function and/or department charged with processing and managing payroll

• The actual payroll process during which employee wages and salaries are calculated and paid

• The list of a company’s employees and the wages/salaries payable to each of them, as in “how many employees are on the payroll?”

• The total amount of wages and salaries paid to a company’s employees, as in “the business’s total payroll”

In a nutshell, the term payroll can be as broad as to refer to the entire payroll management process or as specific as to refer to a specific sum of money. 

Given the term’s versatile use, it’s difficult to come up with a universal definition of what payroll is. In Gartner’s Human Resources Glossary, however, payroll is defined as “a business function or process that all companies must undertake in order to pay their employees [and which] involves the calculation of wages and taxes and the issuing of paychecks.” 

Gartner further states that “[payroll] may also refer to the list of employees a company has on its books whom it must compensate for the work they perform.”

There has always been a debate about where payroll belongs in an organization, i.e. whether it’s part of the accounting or the HR function of a business. We’ll look into this question in more detail in another post in the Lano Payroll Academy, but the short answer is: There’s no clear-cut answer to this question because payroll is closely linked to both departments. But is there a difference in the meaning of payroll in accounting and HR? 

The overall objective of payroll, i.e. getting employees paid accurately and on time, remains the same, regardless of which business function it belongs to. What differs, however, is the distribution of tasks and the underlying perception of payroll. As an employee-facing function, HR is typically responsible for the payroll tasks that involve employees directly, such as collecting employee data and answering questions on paychecks, benefits, and more. Accounting, on the other hand, typically focuses on the financial side of payroll, including payroll calculations and proper record-keeping.

As we’ve seen, there are (at least) four different ways to use the word ‘payroll’. In addition, personal experience in the field can lead to a variety of different connotations and interpretations. Here is what different experts in the payroll industry think about the meaning of payroll.

• Caroline Drake, Chief People Officer at Zellis: “I think people underestimate actually the complexity of getting payroll right. But also it’s important because people use the pay they get from work to pay their mortgages, take their family on a holiday […].” 

• Anita Lettink, Expert HR Tech & Payroll Advisor and Top 25 Global Thought Leader on Future of Work: “I think, for most people, it’s something they expect to happen every month, and they don’t give a thought about what goes into payroll. They only see the end result of that payroll. I think people would be surprised if they found out how much time and effort a lot of people spend on payroll every single month.”

• Rangarajan Seshadri, CEO at Neeyamo: “For me, as a payroll professional, it means fulfilling payroll promises for so many employees across the globe [...] making sure it’s on time, accurate, every time.”

Please note: Quotes were taken from different episodes of the Payroll Podcast by Nick Day.