WHILE FINANCE MAY be the world of working capital and reconciliations, and modern human resource management thrives on productivity metrics such as return on investment on training, absenteeism costs and turnover rate, the two departments should never become independent silos in a business. Together, they can have an impact on the success of any organisation.
Very often, one of the largest expenses for a business is its payroll and, therefore, having the two departments working in tandem can redound to its benefit.
While the finance department may perform the pay calculations and National Insurance and PAYE deductions, human resources instructs finance who to pay and how much.
Human resources practitioners determine if a person is an employee or an independent contractor by referencing legislation.
This determines if the person is on payroll or must submit an invoice for services rendered. The human resources professional must be knowledgeable on legislation and pay requirements to make informed decisions. In this jurisdiction, it can include answering questions like: Is the employee a shop assistant and therefore eligible for double time?
Is this employee eligible to receive notice pay on dismissal or is it a summary dismissal?
Has the employee served long enough to receive vacation pay upon leaving?
Additionally, when it comes to budget preparation, as part of its strategic function, human resources determines what staffing requirements are needed and therefore adequately inform human capital budget allocations.
While planning budgets, companies also look at cost reduction initiatives that must be implemented. These are best achieved through the buy-in of staff and can therefore be a team initiative driven by HR and finance.
But the finance/HR relationship is deeper than that. The strategic management of human resources is essential to the continued growth and success of any business, simply because talent is what drives business.
In an labour-driven enterprise, any value ideas will have both finance and human resource implications.
You need to have the right people in the right positions, and provide them with adequate resources. So while the research and development or marketing departments may come up with new ideas or products, the finance and HR departments’ roles underpins the success as they collaborate to ensure the human and capital resources are in place.
The success of a business can be judged on its balance sheet, income and cash flow statements. These documents, which are in finance’s ambit, should be understood by the leadership of the human resources team. Why?
Essentially, to inform strategic human resources direction by determining where the business is and what must be improved.
Imagine a situation where a small but steady decrease is recorded over the previous quarter, and the human resources director can see a direct correlation between the decrease and the departure of the sales manager.
Alternatively, picture a situation where the introduction of a new commission structure results in increased sales over and beyond the increased commission paid. These scenarios, even though simplified, show how human resources can have a direct impact on the all-important EBIT – earnings before income taxes.
Both human resources and finance departments have the same goal – a thriving, successful company.
Having the teams work in tandem would result in the finance leadership appreciating that everything is not always black and white and cost-centred.
Alternatively, human resource practitioners could focus more on the business impact of their decisions, with the aim of positively impacting the bottom line.
Together, strong finance and human resource leadership positively impacts business. So while cash may be king, we know that it is achieved through the greatest asset – people.
