Cloud HR vs On-Premises HR Software: A Guide for Businesses

Are you looking for a system to manage your human resources? Do you want to know the difference between cloud-hosted and on-premises HR software? In this article, we will compare the features, functions, pros, cons, and tips for each type of system. 

Human resources (HR) systems are essential for any business that wants to manage its workforce effectively and efficiently. HR software can help businesses with various aspects of HR management, such as payroll, performance, rewards, recruitment, time and attendance, and more. 

However, not all HR software is the same. There are two main types of HR software: Cloud-based (SaaS) and on-premises. Each type has its advantages and disadvantages, and choosing the right one can have a significant impact on the business’s performance and profitability.

In this article, we will explain the basics of Cloud-based and on-premises HR software, compare their core functions, discuss the key factors to consider when choosing between them and analyze their benefits and drawbacks. We will also provide some tips and case studies to help you make an informed decision for your business.

Understanding the Basics

Before we dive into the details of each type of HR system, let us first define what they are and how they differ from each other.

Cloud-based (SaaS) HR Solutions

Cloud-based or software as a service (SaaS) HR solutions are HR software that are hosted on the internet and accessed through a web browser or a mobile app. The vendor of the HR system is responsible for providing, maintaining, updating, and securing the software and the data. 

The customer pays a subscription fee to use the service, usually based on the number of users or features.

Some examples of free and paid Cloud-based HR software are Grove HR, BambooHR, Zoho People, and Workday.

On-premises HR Solutions

On-premises HR solutions are HR software installed and run on the customer’s servers or computers. The customer owns the software and the data and is responsible for maintaining, updating, and securing them. 

The customer pays a one-time fee to purchase the software license and may also pay for additional services such as support or upgrades.

Some examples of on-premises HR solutions are Sage, Oracle, SAP, and Microsoft Dynamics.

Accessibility and Infrastructure Requirements

One of the main differences between Cloud-based and on-premises HR software is its accessibility and infrastructure requirements. Cloud-based HR software can be accessed from anywhere with an internet connection, while on-premises HR software can only be accessed from within the customer’s network or through a VPN. 

Cloud-based HR software does not require any hardware or software installation on the customer’s side, while on-premises HR software requires significant investment in hardware, software, and IT staff.

Core Functions of HR Software

HR software can perform various functions, such as:

• Payroll management: Calculating and distributing wages, salaries, taxes, deductions, etc. to employees
• Appraisal and performance management: Setting goals, measuring results, providing feedback, and rewarding performance for employees
• Rewards and benefits system: Designing, implementing, and managing the compensation and benefits package for employees
• Recruitment and employee onboarding process: Finding, hiring, and integrating new employees into the business
• Time and attendance management: Tracking and managing the working hours, absences, leaves, overtime, etc. of employees

Both Cloud-based and on-premises HR software can provide these functions. However, cloud-based HR software may have some advantages over on-premises software in terms of cost, updates, integration, accessibility, collaboration, and analytics.

Choosing the Right HR Software

If you want to invest in a new HR solution for your business, the below factors are worth your consideration:

• Cost: The initial and ongoing expenses of acquiring, using, and maintaining the system
• Setup time: The amount of time it takes to install, configure, and launch the system
• Reliability: The ability of the system to function properly without interruptions or failures
• Security: The ability of the system to protect the data and the access from unauthorized or malicious parties
• Integration: The ability of the system to connect and communicate with other systems or applications that the business uses
• Control: The degree of autonomy and flexibility that the customer has over the system and the data
• Tax implications: The tax consequences that may arise from using the system
• Ease of access: How convenient and user-friendly it is for the customer and the users to access and use the system

Benefits of Cloud-based and On-premises HR Software

Both Cloud-based HR Software and on-premises HR software have their own benefits that can help businesses improve their human resources management. Here are some of the benefits of each type of system:

Disadvantages of Cloud-based and On-premises HR Software

Both Cloud-based and on-premises HR software also have their own disadvantages that can pose challenges or risks for businesses using them. Here are some of the disadvantages of each type of system:

Tips on Selecting Between Cloud-based and On-premises HR Software

Choosing between Cloud-based and on-premises HR software can be a difficult decision for businesses, as there is no one-size-fits-all solution. However, there are some tips that can help businesses make a better choice based on their specific needs and goals. Some of these tips are:

• Assess your business size: The size of your business can affect your HR software needs and preferences.
• Evaluate your data security/privacy needs: The level of data security and privacy that you need can affect your HR software choice
• Consider your upgrades and updates frequency: The frequency and urgency of upgrades and updates that you need can affect your HR software choice
• Check your internet connectivity: The quality and reliability of your internet connection can affect your HR software choice.
• Compare the costs: The costs of HR software include both the initial and ongoing expenses associated with acquiring, using, and maintaining it
• Test the systems: The best way to choose between Cloud-based and on-premises HR software is to test them out before making a final decision

Hypothetical use cases

To illustrate how different businesses made their choice between Cloud-Based and on-premises HR software, here are some use cases:

Hypothetical use cases 1

A small start-up company that provides online education services decided to use Cloud-Based HR software like Grove HR for its human resources management. The company chose Cloud-Based HR software because:

• It had a limited budget and cash flow and could not afford the high initial costs of on-premises HR software.
• It had a fast-growing and diverse workforce and needed a flexible and scalable system to accommodate its changing needs and preferences.
• It had a high demand for innovation and experimentation and wanted a system that could provide access to new features and functions to enhance its service quality and performance.
• It had a reliable internet connection to support its online activities without interruptions or delays.

Companies that chose Cloud-based HR Software

• Simple & Co. (using Grove HR)
• Website Planet (using Gusto)
• H&R Block, Inc (using HR Cloud)

Hypothetical use case 2

A large manufacturing company that produces industrial equipment decided to use on-premises HR software for its human resources management. The company chose on-premises HR software because:

• It had a large budget and cash flow and could afford the high initial costs of on-premises HR software.
• It had a stable and consistent workforce and needed a reliable and secure system that could ensure its human resources management efficiency and quality.
• It had a high need for compliance and alignment and wanted a system that matched its policies and standards to ensure the quality of its human resources management.
• It preferred using productivity apps compatible with its existing hardware and software and did not want to depend on the vendor’s updates or integrations for its cloud-hosted HR software.

Companies that chose On-premises HR Software

• IBM (using IMB Kenexa)
• Deloitte (using Deloitte Connect, based on SAP HCM & SuccessFactors)
• Toyota (using Oracle EBS HCM)

Conclusion

In conclusion, Cloud-based and on-premises HR software are two types of systems that can help businesses manage their human resources effectively and efficiently. Each type has its own advantages and disadvantages, and choosing the right one depends on various factors such as cost, setup time, reliability, security, integration, control, tax implications, ease of access, etc.

We hope that this article has provided you with some useful information and guidance on how to choose between Cloud-based and on-premises HR software for your business. 

However, we also encourage you to carefully evaluate your specific needs and goals before making a decision. Remember that there is no one-size-fits-all solution but rather a best-fit solution for each business.