HR system pricing breakdown: how much HRMS actually costs
As with any major purchase, there are numerous ways of paying (or not paying) for your new HRMS. In fact, depending on your business needs, the pricing model may be a significant factor in your choice of system. Selecting an HRMS is a big investment. When you consider that businesses, on average, spend $6,125 per user for their HRMS system over five years according to HRIS research this makes it even more important to you understand the best pricing model that fits your business needs.
There are three basic approaches to pricing: subscription, license, and free.
As you’d probably imagine, the subscription pricing model is based on a regular payment in return for use of the system. It’s probably the most common type of model for modern HRMS packages, its popularity rose alongside the (still-increasing) trend for HRMS in the cloud. Payments are usually taken monthly (though some vendors offer an annual contract, e.g. Zenefits) the amount depending on either the number of employee records kept on the system or the number of system users accessing it.
The key benefits of the subscription model is that it’s flexible and it often costs less up front – you can have your HRMS up and running with a lower initial investment. A downside is that cloud HRMS packages are usually ‘off-the-rack’ with few options for customization. That said, no hardware costs!
A license fee is the traditional business software payment model and in the world of HRMS is usually found with on-premises systems. Your license gets you the software to be installed on your own servers and hardware which, usually, you maintain and upgrade, as necessary. The number of records kept on the system or users accessing it are more logistical issues than financial.
The benefit is greater control over the system and your data (you know exactly where it is, for a start) and consequently, the freedom to customize to your heart’s content. Although the initial cost of a licensed system is greater, you’re not routinely paying a subscription fee. It’s a little like the difference between buying and renting a home: there are more responsibilities associated with owning, but with renting, you’re paying for as long as you live there – sooner or later the costs converge and over enough time, the licensed option may work out cheaper. It depends on how many years’ use you expect to get from it.
Free or ‘freemium’
Your first question may well be, what’s the catch? Well, if an HRMS vendor offers their system for free, that’s usually what it is. You can just download, setup, and start using. However, there are a few caveats to the free model…
First, it’s likely to be quite basic and if you’re looking for fancy features (gamification, social collaboration, predictive analytics, etc.) then you’ll probably have to open your wallet. Second, that limited functionality is often a deliberate marketing feature: there are features beyond personnel record keeping, time and attendance monitoring, and leave management available… but they have a price tag. Third, the free version is often limited in terms of employee records, which is great if you’re only a small organization, but not so much if you’re a larger company. Finally, there’s often limited or no support with free HRMS; that feature costs extra.
Whichever pricing model you choose comes with advantages and disadvantages that must be measured against your business needs to find the ideal system.
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