The importance of a strong relationship between HR and Finance (2024)

Most people see a fundamental difference between Human Resources and Finance; after all they represent different components of business. People (HR) vs. Money (Finance). This assumption couldn’t be more wrong. While Finance views HR as an unnecessary cost, HR thinks finance is out to squeeze every penny they can find. Bottom line is both departments function as gears powering a larger machine. Individually each department provides services to the company, many of which overlap. When HR and finance function cooperatively the company moves into a new era of efficiency, production, customer satisfaction and most important, profit.

HR’s objective is to hire, educate and task a well-trained production force. A large number of programs are required to achieve and maintain this objective. From hiring qualified candidates and providing proper training to insurance benefits and meeting production needs; HR requires a lot of financial information in order to perform their job at maximum efficiency. Say that production goals are exceeded but customer satisfaction is down, it is likely that employees are overworked, costing more money in overtime pay. HR needs to know this information to prevent any gaps in performance. Adjusting before the problem saves the extra cost of unsatisfied customers and unprofitable overtime pay. Finance does more than just crunching numbers. They collect and calculate production and earnings information as well as customer satisfaction ratings. The data Finance gathers and controls (performance measurement data) is needed by HR to make the best financial decisions. Without a source of relevant real-time data (Finance) HR depends on inaccurate projection models when requesting funds for programs; making it very difficult to provide viable return on investment data. Performance measurement data is crucial information that is required regularly for HR to keep the company running smoothly while exceeding all performance and customer satisfaction goals.

Initiating a cooperative environment between HR and finance is no simple task. Someone can’t just say “work together” and it’s done. There have been clearly designated functional walls between them for as long as there have been separate departments. A new type of business is evolving, many ideas and practices that were once thought taboo or bad business have been implemented with surprising results. Some smaller companies have even merged the HR and finance departments into one unit. They overlap on so many functions HR and Finance can work most effectively as a checks and balances system. Payroll is an overlap function, obviously considered part of finance, HR is responsible for the employee end of payroll. When departments don’t communicate there can be a lot of issues at great cost to the company. Many companies don’t realize that HR may hire a new employee and not tell payroll right away. Data systems and technology are purchased without notification to Finance until they discover them on quarterly reports. If that tech wasn’t researched and calculated properly it may end up costing more than it saves. Another common oversight occurs when an employee is fired and payroll continues to issue them checks. Finance can also be in the habit of excluding HR from important financial decisions. When Finance makes major budget cuts without consulting HR they often unintentionally expose the company to possible employee and sometimes customer legal action. The negative effect and added expense to the company should encourage communication.

To create an open flow of information and cooperation start with a project that has obvious overlap between HR and finance. Incentive programs are a great way to get the ball rolling. By collaborating and sharing data received and employee performance data HR and Finance can create Incentives that reward exemplary work while increasing morale, production and customer satisfaction; all of which have a huge effect on the bottom line and profit. CFO’s are interested in the results their departments can produce not excuses and mediocre performance. Take a look at some of the most successful business practices. It is becoming more common to integrate HR and Finance in many ways. Some companies also designate representatives from each department to communicate their department’s information and needs to the other. Finance should understand exactly what HR does on a day to day basis and its role in the company as a whole. Finance can then discover ways to implement their own practices and detailed information. Consulting HR when making financial decisions has on going benefits for finance as well. By utilizing the functions of HR, Finance will gain valuable insight into research and development, Resolution, and many other business functions.

Without HR and finance openly communicating and providing the other with expertise and detailed on going data; a business will struggle to compete in today’s market. A modern business in our ever evolving economy it is imperative to have full support between HR and finance. The benefits are extensive, bringing production, customer satisfaction and profit to maximum potential.