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Budgeting for People:  Aligning HR and Finance for Smarter Workforce Planning

January 21, 2025

In the tug-of-war between people and profit, aligning HR and Finance is the secret to smarter, more sustainable workforce planning.

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Finance and Human Resources are twin pillars of every organization’s success. Finance ensures profitability and sustainability, while HR creates the culture and environment that drives the organization’s long-term success. 

But both are responsible for managing the organization’s single biggest cost: its people.

In a time when budgets are tight, the hiring landscape is unpredictable, and the market can turn on a dime, the alignment of the HR and Finance functions isn’t just important — it’s critical for business survival. 

Understanding how these functions intersect can help leaders break down silos, streamline operations, and achieve long-lasting impact. In this article, we’ll explore the common friction points experienced by HR and Finance teams and how you can overcome them.

Key Takeaways

  • HR and Finance most commonly clash over talent management priorities, data and tech infrastructure, and decision-making authority.
  • When HR and Finance strike the right balance between mutual processes and priorities, it increases the organization’s operational efficiency, agility, and decisiveness.
  • To drive better collaboration between these two functions, both teams need to centralize their dataflow, clarify who does what, increase transparency, and design shared metrics to evaluate HR outcomes.

Where HR and Finance Align on Workforce Strategy

On the face of it, HR and Finance may seem like separate business functions with very different goals. But both share a common foundation of building a high-performance organization. This requires both a strategic approach to managing people, and a clear grasp of how human capital spending impacts the bottom line.

"In many modern businesses, the largest cost item is what the company pays the people who work there,” said Ciara Lakhani, Principal and Chief People Officer at Elevate People, an organization offering executive coaching and HR consultancy. “When the People team and Finance work well together, we ensure that headcount planning, compensation strategies, and workforce investments are aligned with long-term business goals and run more smoothly.”

This business-critical alignment shows up in a few key ways:

  • Headcount planning: Managing future headcount needs with budget and market salary to ensure that growth stays both strategic and sustainable.
  • Compensation and benefits management: Creating competitive but financially sustainable pay, incentives, and benefits packages that attract and retain talent.
  • Performance management: Building performance criteria, career pathways, and incentive systems that offer progression and recognize achievement while aligning with long-term strategic goals.
  • Workforce development: Mapping out ways to develop and retain employees through learning and development programs and skills-building.
  • Compliance and risk mitigation: Maintaining compliance with labor laws, tax regulations, and reporting requirements.

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By integrating headcount management into your HR strategy, you can boost efficiency, agility, and ensure every hire drives success.

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Common Conflicts Between HR and Finance

While HR and Finance may be working towards a common goal, they often have different perspectives on how to get there. 

Finance speaks the language of numbers, balance sheets, and driving ROI, while HR is the voice of the organization’s people, culture, and employee experience. 

This tension between seeing employees as a cost versus a contributor can lead HR and Finance to butt heads on a few key issues, including hiring priorities, decision-making, and strategic alignment.

Talent Management Priorities

People are the engine behind every successful organization. Hiring people and aligning on headcount and compensation are key to ensuring the organization has all the employees and skills it needs to survive.

But beyond talent acquisition, HR and Finance often find themselves at odds when considering ongoing talent management and people strategy. 

Because when it comes down to it, it’s not just about filling seats — it’s about keeping them filled long-term. For HR and Finance teams, it’s a delicate balance of managing short- and long-term outcomes.

A major alignment challenge between HR and Finance is navigating investments with unclear return on investment (ROI), said Edel Holliday-Quinn, an organizational psychologist at the Centre for Leadership Psychology. 

“Aligning on these priorities can be tricky when the organizational strategy is focused on short-term value creation,” Holliday-Quinn said. “For example, suggesting a significant budget for a leadership development program can sometimes feel like pushing against a wall if Finance is looking primarily at quarterly results rather than incremental value.”

She adds that, while these programs may not directly tie to short-term revenue, there is robust evidence showing their long-term impact on critical business metrics like retention, attraction of top talent, and overall productivity.

Data and Technical Infrastructure

HR and Finance rely on shared data to ensure their workforce is paid the right amount at the right time. They also need a centralized data source to manage promotions, track career progression, and keep salary adjustments fair and equitable.

But often, HR and Finance manage their data separately and in different software programs. The result is mismatched data sets and expectations. 

“A common challenge I hear from companies is that Finance has one number for headcount, HR has a different number, and those outside of those departments are perplexed why this is the case,” Lakhani said.

This issue, said Holliday-Quinn, is compounded by the type of data each function uses. While Finance data is often concrete and numbers-driven, HR data can be more nuanced and less accessible. That can lead to trouble down the line when calculating return on investment.

“Demonstrating the ROI of ‘soft’ initiatives often requires correlating engagement surveys, turnover rates, and performance data with financial outcomes,” she said. “In smaller organizations — or even larger ones prioritizing analytics elsewhere — this data isn’t always readily available, leaving HR with fewer tools to justify investments.

Learn More: Strategic Workforce Planning: Laying the Groundwork

Strategic Alignment and Decision-Making

Lack of clarity can also cause conflict for HR and Finance — particularly when it’s unclear who owns what, or who has decision-making authority. In organizational structures where HR reports to Finance, for example, it may hinder HR’s strategic influence, making it harder to push for people over profit.

This misalignment impacts more than just day-to-day operations. It can have a huge impact on long-term planning and strategy.

“HR strategy must be closely aligned with the organizational strategy, and this is where collaboration with Finance becomes crucial,” Holliday-Quinn said. “For instance, a decision to freeze hiring might seem fiscally prudent from Finance’s perspective but could derail HR’s succession planning efforts, creating a risk to long-term organizational resilience.”

The Business Impact of HR and Finance Alignment

Misalignment between Finance and HR isn’t just an internal issue — it can lead to significant downstream challenges for the company. But when HR and Finance are on the same page, the whole organization benefits:

  • Optimized workforce planning: Finance and HR have a clearer view of which talent initiatives deliver value, which don’t, and which areas of the organization need more investment. Both teams can work together to allocate existing resources more effectively.
  • Improved strategic decision-making: Integrating employee lifecycle data alongside revenue and profitability will highlight new patterns and trends, helping both teams build data-driven strategies that drive business growth. 
  • Improved employee experience: Clear expectations around compensation, performance, progression, and development provide employees with a sense of stability, paving the way to long-term retention and engagement.
  • Stronger compliance and risk mitigation: With both departments on the hook to adhere to stringent labor laws, tax requirements, and reporting, better collaboration can help minimize the legal (and financial) risks of non-compliance.
  • Increased organizational agility: In a volatile economy, aligned HR and Finance departments mean the organization is better prepared to pivot strategy in response to market shifts — meaning greater future stability. 

4 Best Practices to Drive HR and Finance Collaboration

When Finance and HR are in lockstep, it creates a mutual support system: HR ensures the business can attract, retain, and develop the talent it needs for long-term success, while Finance provides the resources and business acumen that support both people and profitability.

Here are four best practices to build better collaboration between HR and Finance.

1. Centralize HR and Finance Data

When HR and Finance work from siloed datasets, it’s a breeding ground for misaligned goals. Building a centralized source of shared data means that both functions operate with the same information, improving collaboration and strategic alignment.

An integrated HRIS or work management platform can help here, providing real-time access to key employee lifecycle data, including employee information, salary, payroll data, role level, progression rate, and headcount analytics. 

This creates a unified view of both teams' actual state of play, supporting better decision-making on critical processes, including headcount planning and budget forecasting. 

Paylocity’s headcount management tool offers a centralized source of truth for both HR and Finance teams

2. Clarify Lines of Accountability

Where ambiguity lurks, miscommunication and mismatched priorities are sure to follow. Clarifying ownership and decision-making authority over shared processes upfront is essential for long-term strategic alignment, suggested Lakhani.

“Where the HR leader and the Finance leader [are] peers, clarifying [accountability] using a RACI (responsible, accountable, consulted, informed) matrix of how they will work together, and on which topics, can be very helpful,” she said.

To run this exercise, map out HR’s processes, and the key tasks within each process, that overlap with Finance, including headcount planning, compensation, progression plans, and performance management. Understand the role each team plays, and identify how different stakeholders interact.

3. Strengthen Cross-Functional Understanding

When Finance and HR build a strategy in a silo, neither can effect change that drives the organization forward. Building a better partnership relies on greater cross-functional understanding — and transparency — around one another’s goals and priorities. 

“[It’s important to foster] transparency and allow HR and Finance to co-create solutions, such as aligning a leadership development program with broader organizational goals,” Holliday-Quinn said. “Finance should have a seat at the table for discussions across all operational areas, including HR. Equally, HR should be involved in strategic and financial planning from the outset, ensuring mutual understanding of priorities and constraints. 

“For example, engaging Finance early when designing an employee wellness program can help set shared expectations and align budgetary support with outcomes that both functions value.”

4. Design Shared Metrics to Quantify Mutual Outcomes

Measurement is critical to monitoring the long-term success and adjustment of shared goals. Holliday-Quinn noted that establishing a set of shared key performance indicators (KPIs) that help Finance quantify the ROI of HR’s initiatives will help drive better understanding and support for future investment.

For example, HR and Finance can align on KPIs anchored to broader business goals, including retention rate, cost-per-hire, new hire training costs, or employee progression rate. 

By connecting people-focused outcomes to financial metrics, both functions create a common language that helps them evaluate the success of initiatives from a shared perspective. 

Learn More: 10 Metrics That Matter to Your C-Suite

Building Stronger Partnerships, Driving Smarter Outcomes

HR and Finance may have different perspectives on what drives organizational success. But together, they share a critical responsibility in hiring, retaining, and developing a workforce that will build a high-performing organization.

“When HR understands financial principles and Finance appreciates the value of human capital, it fosters trust and collaboration,” noted Holliday-Quinn. “Ultimately, organizations thrive when HR and Finance are aligned. It’s not just about spending or saving — it’s about investing wisely in people.”

Aligning both departments is not an overnight process, but when done well, it’s likely to pay dividends for organizations’ efficiency, agility, and talent attraction.

Paylocity’s Headcount Planning features are designed for organizations looking to strengthen their HR-Finance partnership. With our platform, teams can:

  • Streamline workforce planning and internal stakeholder contributions.
  • Automate changes based on your employee lifecycle.
  • View and track expense drivers in real time.
  • Maximize transparency across the organization.

Request a demo with our team to find out more.

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