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Should HR Report To Finance? Here Are 3 Things You Should Consider

By News Creatives Authors , in Leadership , at July 16, 2021

For decades, human resources has fought hard to have a seat at the table where decision-making processes take place. Previously, they’ve been the minority of the organization, but as of recently, HR has rightfully gained a seat at the table, and now, they’re being looked at to lead the future of work. In fact, it’s estimated that more than 60 new HR jobs will be created over the next 10 years, according to the Harvard Business Review.

Despite the need and growth of People and Culture, when companies are desperate to save money, their first choice is to eliminate the HR department. Most often, companies will retain at least one recruiter who then reports to the Finance Department. While it’s understandable that companies need to make sacrifices for cost savings, the consequences of having other employees, specifically finance, handle HR tasks are disadvantageous.

Here are three things you should consider before having your HR department report to finance.

They’re Two Different Functions

Traditionally, HR and finance have been nestled under one function. While both roles have overlapping goals, HR and finance were separated because they operate as two distinct areas of the business. Employers realize that today’s HR is more complex than ever and they can’t afford to risk potential lawsuits due to not staying abreast of new HR changes and regulations. Jake Hill, CEO of DebtHammer, explains, while it’s important for these two departments to communicate and collaborate, their overall focus is vastly different from one another. Thus, it becomes a conflict when they’re merged together.

Here are some of the areas that HR focuses on:

  • Team-building events; developing innovative employee programs and initiatives
  • Training and development
  • Crafting, implementing and enforcing policies
  • Ensuring compliance
  • Managing perks and benefits
  • Retaining employees
  • Recruiting and onboarding
  • Terminations, layoffs, and exit interviews
  • Building relationships internally and externally; promoting the employer brand
  • Creating an inclusive and engaging culture; Diversity, Equity and Inclusion (DEI) efforts
  • Employee relations, and more

On the contrary, finance’s role is making sure the company hits its revenue goals, manages its accounts successfully, looks for ways to save the company money, and ensures each department follows its budget and doesn’t waste financial resources. Hill asserted, while both functions are fundamental to the success of the business, they are two wildly different disciplines requiring different skills and experiences. He added, having HR and finance as one function is irresponsible and foolhardy.

Companies that have a dedicated HR professional to manage all people matters undoubtedly have a competitive advantage over those who have their Head of Finance trying to juggle both roles. Creating a people-first culture means having a designated department where employees can turn to when they need help, support, and guidance. Without a designated HR person, employees feel unsupported and not sure where to turn to for help. As such, employees become disconnected, disengaged, unhappy and it leads to increased burnout.

Culture Favors Profit Over People

HR is known to be the face of the company, internally and externally. Therefore, when the HR department is eliminated, there’s no one to advocate for the employees. As such, the company leans more profit-focused rather than employee-centric. Additionally, it creates undue pressure for HR workers to focus on generating revenue and satisfying financial goals. As a consequence, the people experience suffers due to HR’s hands being tied. Thus, it becomes increasingly difficult to promote having a people-first culture when finance is dictating employee needs. I have no doubt there are some organizations that have exceptional finance leaders that can successfully manage both functions without their financial blinders getting in the way. However, those are few and far between.

As the workplace evolves and the new generation of workers takes over, more unique situations are bound to arise causing more gray areas for HR to decipher. For this reason, it’s crucial to have a dedicated people-focused professional that advocates for effective policies, employee development, and creating a safe space for all workers. For finance professionals, who operate in a more cut and dry approach, it’s an undertaking having to switch between multiple demands of two different functions. Sooner rather than later, the people experience will be negatively impacted.

There Are No Checks And Balances

By answering to finance, HR professionals are one step removed from where the business decision-making process takes place—at the executive table. This is a detriment to the business and does a disservice to not only the employees but the employer brand as a whole. Brenda Neckvatal, HR professional and best-selling author, explained that finance and accounting professionals engaged in HR matters often become frustrated when trying to resolve employee issues. This is because they’re more linear thinkers. They don’t understand why issues take so long when there are policies and procedures to make them clear. However, any tenured HR professional knows that people issues aren’t that simple, and require careful time and analysis of all facts to apply a successful resolution.

When it comes to HR, nothing is ever what it seems and there are a lot of gray areas. Thus, the approach to the solution is never the same, the variables are constantly shifting, and depending on the details, there’s a great deal of consideration and contemplation around employment law that needs to be evaluated. Staying on top of new regulations and changes in employment law isn’t an easy feat. If finance is managing both functions there’s no checks and balances to ensure the company isn’t being exposed to possible legal issues.

Willie Greer, founder of The Product Analyst, added, “this is what makes these two departments different, therefore, when HR reports to finance and finance reports to the CEO, the latter will always have a bias as it’s their job to make sure that everything spent is well accounted for and are primary costs.” Greer explained, “finance doesn’t care about whether an employee should improve or not as it’s not in their job description to put emphasis on it. Consequently, there’s no balance on the team, as things and decisions will always favor the finance team.”

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