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The 'Whys' of Why You Should Consider HR Software for Your Small Business Be wary of going with a desktop software in a business world that's being shaped around the cloud.

By Anna Johansson Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.


Everywhere you turn, software seems to be the answer. You're probably already using software for your marketing, accounting and management. But have you yet considered the need for human resources software in your small business? In fact, it's much more than a luxury. Businesses that use HR software would likely call it a necessity.

Related: 5 Ways HR Technology Can Improve Performance Reviews

What is HR software?

In its simplest form, HR software means specific platforms that combine different systems and processes to ensure a business' employees are readily accessible when needed and data is properly stored.

All HR software, of course, is different, and each business has unique needs and applications. But systems typically include payroll management, benefits administration, attendance recordkeeping and time stamps, or some combination of those functions.

HR automation isn't new, but we are finally at a point where it's cost effective and feasible for small businesses to utilize. You can trace automation all the way back to the late 1970s when big corporations started using ERP systems to overcome the manual limitations they faced with the use of mainframe computers.

In 1987, the first totally HR-centered platform was released by Oracle (which still offers premium HR tools today). Since then, dozens of systems have been launched and improved upon. There was a lot of innovation in this space in particular in the late 1990s and early 2000s, but it was only recently that HR software finally became cost effective (thanks to the cloud infrastructure).

The benefits of HR Software

If you've been manually handling HR operations in the past, you may wonder about the benefits of paying for a software system. But take a closer look:

1. Cost savings

Are you familiar with the cost of employee turnover? Chances are, you've drastically underestimated what it really costs your company to replace an employee. According to research from different studies, a company will spend anywhere from 16 percent to 213 percent of its average employee's annual salaries to hire someone new.

Replacing even someone in a low-paying job is likely to amount to 16 percent of his or her salary. So, for an hourly employee making $10 an hour, you're talking about roughly $3,328 when all is said and done. That number scales to 20 percent for a mid-range position ($30,000 to $50,000) and then balloons to a whopping 213 percent for executive positions. (Need to replace a CEO earning $100,000? That will cost you roughly $213,000.)

Related: A New Wave of HR Technology Is Disrupting the Market

What does all of this have to do with HR software? Well, a good HR platform helps reduce turnover by ensuring employees' needs are taken care of. Furthermore, it makes the process of finding the right candidates simpler. As a result, there's less likelihood of hiring someone who's wrong for the position -- which further drives up costs.

2. Better use of time

Time is the one thing your HR staff can't get more of. Thus, it's imperative that you help them create systems that maximize time. If your HR team is constantly inputting data by hand, making phone calls and manually vetting candidates for openings, they won't have time for things that matter more -- like handling legal issues and enforcing company policies.

An HR software platform isn't a perfect solution, but it certainly helps businesses save time and better allocate manual resources to areas that really matter to a company's health.

3. More accurate insights

With the amount of data that comes through an HR department these days, it's virtually impossible for any person -- or group of people -- to process everything. This means valuable information is constantly being overlooked or misplaced.

The beauty of working with HR software is that you don't have to rely on your own human limitations. Data is synthesized and analyzed in powerful ways that allow you to obtain more accurate insights and make strategic decisions.

4. Surprisingly cost effective

"Many business people believe that purchasing a top-quality HR software package will bankrupt their entire marketing budget. This is simply not true," business consultant Malcolm Rowlings said. "Some of the best HR packages have financing programs and monthly memberships that can work with even the smallest startup budget."

Some would even argue that you can't afford not to use HR software. The amount of money you're losing in terms of lost man-hours and mistakes doesn't even begin to compare to the up-front cost of HR software. It's an easy call to make.

The features to look for

If you're in the market for HR software, you have plenty of choices. In order to narrow down your options, you need to know what you're looking for:

1. Cloud platform. There are plenty of desktop and on-premises HR software applications available today. Many of them are useful and, surprisingly, pack a pretty powerful punch. However, be wary of going with a desktop software in a business world that's being shaped around the cloud.

Cloud software platforms are so much more valuable these days. Take People HR software, one of the leaders in this niche, as an example. Whereas a desktop solution requires the user to actually be in the office and log on to a particular computer in order to access the platform, a tool like People lets employees access information regardless of whether they're in the office or using their smartphone in an airport.

That's the power of the cloud.

2. Self-Service Features. The more you're able to offload responsibilities from your HR team, the more useful they can be. In other words, if your HR team doesn't have to worry about constantly emailing the same answers to employees who repeatedly ask about sick days and pay stubs, they can focus on big-picture tasks that really matter. This is where self-service features come into play.

A self-service HR software platform – such as the one Paylocity offers – puts the power in the hands of employees by developing a centralized portal that employees, managers and HR can all access. It lets employees request days off or review payroll details, while HR can monitor what's happening and get notifications when approval is required.

3. Scalability. The third thing you need to be cognizant of is scalability. If you're like most companies, you're anything but stagnant. You're most likely growing, and the last thing you want is to invest in an HR system, learn how to use it and then have to replace it because your team outgrew it.

Good HR software is scalable in the sense that you only pay for what you need. And when you need more access, you simply upgrade without interruption. Most of today's leading cloud systems -- such as People -- are scalable, but make sure you evaluate this in the vetting process.

Make the right choice.

HR software finally makes sense for small businesses. It's equal parts functional and cost-effective, which means there are very few negatives to investing in this technology.

Related: How This Startup Is Aiming to Make HR Easier

However, you do need to do your research and know what you're looking for. Every platform is different, and you'll want to be sure that you're getting access to the features you need.
Anna Johansson

Freelance writer

Anna Johansson is a freelance writer who specializes in social media and business development.

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