Cloud HRMS: What Does it Cost?

Have a read of any number of industry white papers over the last few years and they’ll tell you there are any number of reasons for the astronomic growth of cloud computing (including for HRMS): the global recession that kicked off in 2008, the evolution of the modern workforce (and workplace), the sheer flexibility provided by increasingly nifty modern technology… The list is potentially endless but of course, a big factor for many businesses looking to move their HRMS “cloudwards” is the cost. Quite simply, the reputation of cloud HRMS is that they’re cheaper than their more traditional on-premises forebears. The old saying is, if it sounds too good to be true, it usually is. The $64,000 question is does that apply to cloud HRMS?

Cloud HRMS Cost Structure

The common cloud HRMS pricing structure works on a per head basis depending on number of employees. In other words – simplistically – how many records will be managed by the system. This makes sense in that more records mean more space in the provider’s data center. What’s more, this ‘per record’ cost is often subject to a bulk discount – i.e. the more employees you have, the less you’ll pay for each one. So far, so good. It gets better. Often the pricing model is on a pay-as-you-go basis; no lengthy contract tie-ins. It’s this sort of approach that makes cloud HRMS solutions so popular; you can dip your toe in the cloud water without a large initial investment or long-term commitment.

All good so far and the good news is often encapsulated in the OpEx vs. CapEx debate. The point is, because cloud systems are effectively rented rather than bought, the fees are classified as operational expenses whereas on-premises, licensed systems are classified as capital. This budgetary shift is just the icing on the cost cake for cloud fans.

Unique Hidden Costs

But, as we all know cost is more than the figure on the price ticket. We’re talking TCO or total cost of ownership (or in the case of cloud, maybe that should be TCR or total cost of rental?) and cloud HRMS can have some unique hidden costs, including security breaches that stem from having a system that isn’t managed by your own IT department and isn’t integrated with your existing IT systems; increased backup and recovery failures; data privacy non-compliance fines; eDiscovery requests can be more difficult to meet, leading to missed deadlines; and inefficient management of SSL certificates.

So, cloud HRMS and SaaS solutions dangle the ‘low-cost’ incentive and to be fair, the cloud usually is cheaper which is an important factor in any selection decision. However, things are rarely so simple and as with any purchase or new contract, you need to look carefully at your current system costs, your functionality requirements, and the cost of the shiny new cloud HRMS that will meet those requirements. As ever with cost, it should always be considered alongside risk and it’s the balancing point between the two that will (or should) drive your decision.

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Dave Foxall

About the author…

Dave has worked as HR Manager for the Ministry of Justice for a number of years, he now writes on a broad range of topics including jazz music, and, of course, the HRMS software market.

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Dave Foxall