Are you paying too much for your HRMS?

Cost is important. It’s called the bottom line for a reason. So, when acquiring a new HRMS, how do you know if you’re getting a bargain, paying the market rate, or being fleeced?

Given the vast variety of systems on the market, the numerous functions available, differing deployment options, and support packages, it’s hard to point to a standard rate or price. However, here are some tips to guard against the dreaded HR software ‘rip off’…

1. Understand the pricing model

The one thing all HRMS have in common is that the figure on the ‘price ticket’ is almost certainly not what it will cost you. Pricing models come in two broad types: the ‘traditional’ license in which you pay a one-off fee (determined by how feature-rich the system is) and probably an annual maintenance or support fee; and the largely cloud-driven ‘SaaS’ subscription model in which you pay a monthly charge based on the number of active employees or system users.

Recommended reading: understand HRMS costs and ensure you get a good deal with our comprehensive HRMS pricing guide.

2. Know the TCO

As should be clear already, the ‘price’ is not all you’ll be paying. The TCO (Total Cost of Ownership) is the umbrella figure that includes all those little hidden costs and charges or implementing and maintaining an HRMS, including:

• System installation: the cost of getting it up and running, including data cleansing and migration, and any hardware costs for on-premises (non-cloud) deployment.
• System upgrades: the occasional but essential cost of having the latest version.
• Direct labor costs: the cost of any staff needed to support the system (less common with cloud systems).
• Outsourcing costs: some systems are bundled (or sold by) third party service providers.
• Direct non-labor costs: extra services from the vendor, including HRMS consultant; also related corporate overheads such as staff downtime while training on the new system.
• HRMS maintenance costs: IT costs related to system maintenance.
• Indirect labor costs: the cost of employees involved in ‘HR activity’ directly related to the HRMS (e.g. collection of staff data, timesheet monitoring, etc.)

3. Calculate the ROI

Return on Investment (ROI) is the ultimate test of whether you should be happy with the price paid or not. The price tag is on half of the equation but the other is the benefit (or lack of) that accrues from using your HRMS. The expected benefits should be clear from the start, before you even begin looking for the right system. What’s more, those benefits should be measurable in monetary terms (so that you can easily compare them with system costs). Consider the following as potential metrics that measure the benefits of your new HRMS:

• Improvements to HR productivity.
• Per capita time saving thanks to faster self-service HR transactions.
• Time saved due to streamlined HR processes.
• Improved employee retention.
• Improved value for money due to lower dropout rates for training activities.
• Reduced employee turnover.
• Headcount reduction (due to providing HR services with less staff).

Knowing the true cost of the system upfront, and being clear on exactly what financial benefits you expect to accrue is the best defense against overpaying on your new HRMS.