Human Resource and Finance: Similarities and Differences

 

 

The Human Resource is responsible for managing the employee life cycle such as recruiting, hiring, onboarding, training and firing employees. This division of a business whose responsibilities include compensation, administering employee benefits and keeping up to date with any laws that may affect the company and its employees. Finance is the activities associated with banking, leverage or debt, credit, capital markets, funds and investments. This represents the getting, the spending, and the management of money.

The Human Resource provides Finance with the data they need to track costs associated with labor accurately. For this relationship to work, human and financial resources need to be transparent. That starts with having technology and processes in place to track data for both departments.

Human Resource is focused on human capital, while finance is focused on monetary capital. Human Resource leaders are probably much more willing to pull out the check book to invest in employee training and development. Finance, on the other hand, quantifying the return on investment of such activities. Employee discipline or internal conflicts between coworkers are the things that keep Human Resource leaders up at night, whereas finance is more likely to be troubled by cash flow issues. When it comes to big picture decisions, finance will be considering the bottom line, while HR will be thinking about employee morale.

Fig. 1. Human Resource and Finance Can Improve Business

The Human Resource department and the finance department are distinct entities for many organizations. Human Resource leaders focus on hiring, training, and motivating a business workforce while Finance professionals focus on allocating resources by looking at the expenses versus revenue incurred by departmental processes throughout the organization. While the distinction between Human Resource and Finance has helped solidify roles as workforces continue to change, the need for established Human Resource and Finance relationships increases.

This opposition between departments is primarily attributed to differences in business mindsets. The language of finance is mainly number-driven, which means most financial departments prefer an overview of how an expense will bring a valid return on investment. Human Resource views new employees as a human return on investment. For Human Resource departments, recruiting and hiring employees are justifiable expenses that don’t need to demonstrate Return of Investment. Both finance and Human Resource work towards a common goal of higher workforce performance and profitability. Human Resource needs to consider the cost and benefits of onboarding new employees, and so does finance.

In terms of technology, most of the time, Finance and Human Resource have different priorities. Finance wants something that is cost-efficient to get the job done, with quick insight into an organization's expenses while Human Resource needs a tool that allows for total employee lifecycle management and easy data accessibility. One department has to sacrifice their needs in a solution because there is not enough in a budget for both to get what they need. It is easier for finance to allocate funds towards company policy initiatives when kept in the Human Resource data loop. Human Resource can determine the number of employees needed to keep the workforce running when finance is proactive in communicating with Human Resource how many employees the business can afford to hire.

Chief Finance Officers and Human Resource managers are two sides of the same coin, and joining forces leads to more data-supported conversations about the drivers of corporate performance. If collaborated, between Chief Financial Officers and Human Resource managers it is essential in utilizing Human Resource workforce technology that adequately captures, analyzes, and reports workforce and labor data. When both entities use an integrated human resource and finance system, they can conduct benefits administration entirely online: 

* Process time cards more efficiently.

* Keep compliance in check.

* Align employee retention and onboarding costs with budgeted forecasts.

Human resources professionals overlook the role of finance in day-to-day operations. However, it may be surprising to some individuals how impactful human resource decisions can be to the financial longevity of an organization. Having a comprehensive understanding of the role of finance in business as a human resources professional is an advantage to ensuring a return on investment in the services that human resource provides. Determining which decisions are made in the world of human resources that rely on financial information and the knowledge of financial tools helps to provide a foundation by which business success has a better chance of being set. Not only will this strengthen the return on investment in what human resources provides to an organization, but it will also ensure that all strategic aspects of the business are considered when those important decisions are made. 

Finance believes Human Resource must be able to speak the language of business, which is numbers and, more specifically, business and financial results. This is the language that every publicly traded company, nonprofit and public-sector organization speaks. It is the language that finance professionals think, speak, live and breathe.

Fig. 2. Financials and Human Resources

We must understand that the employees in Human Resource and Finance have different skillsets and perspectives. Human Resource is focused on human capital, while finance is focused on monetary capital. The language that is spoken in each department is often very different. 

On the other hand, understanding and acknowledging the similarities is an important step towards bridging the gap between the two departments:

• Both departments care about the overall success of the company
• Both departments rely on technology and data
• Both departments have complex jobs

Helping employees understand these commonalities, making them understand and implement the technology that their counterparts use is an excellent way to help the gap between Human Resource and Finance.

 

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References:

Amy Knight, “The Role of Finance in Human Resources”, January 2017

Jeff Higgins, “Bringing Finance and HR Together with Analytics”, November 2014

Aliah D. Wright, “HR and CFO Collaboration Equals Growth”, June 2014

Jim Taylor, “HR and Finance Have in Common Than You Think”, December 2020