How to determine which HRMS pricing model suits your business

Even the most cursory online search for a new HRMS will tell you that there are different pricing models available to the would-be purchaser; usually falling into one of three broad categories: subscription, license, or freemium. It’s easy to look at the trend for cloud HRMS, and (almost always) the subscription price structure that comes with them, and just go with the flow. However, would that be the right choice for your business? Let’s look at the different HRMS pricing models and the benefits of each.

Subscription

As it sounds, the subscription involves a regular payment in return for access to and use of your HRMS. Usually, that HRMS is online, one of the many cloud or Software-as-a-Service options on the market, as access via the internet gives the software vendor greater ease of control over the system and therefore the option of charging on the basis of continued usage rather than a one-off license payment.

Some subscription vendors apply a minimum payment period (e.g. Zenefits offer an annual contract) but on the whole, the principle is a pay as you go service with the exact payment amount depending on either the number of system users or the number of employee records stored on the system.

If your price is based on the number of records, you should expect to see a discount ‘per head’ as the number of employees increases. Also, beware of upfront, one-off implementation or setup fees that are often not well-advertised in the initial pitch.

If your subscription amount is based on the number of system users that should encourage to be more choosy over who accesses the system. However, check into the vendor’s definition of what a user is… if you want to include employee self-service features, you may find that every employee counts as a user. Or there may be different prices from different levels of user distinguishing between, for example, the average employee who checks their payslip and maybe makes the occasional time off request, and a department head who is tracking the deployment and performance of a substantial team of people.

Examples of vendors of subscription HRMS include BambooHR, Cezanne, and Ultimate.

License

Licensing is the traditional business software model; though the subscription approach has now been around for so many years that “traditional” is becoming a misnomer. Your upfront, one-off license payment gets you the system software which you then install on your own premises, on your own servers and hardware. The vendor releases updates and patches according to their own schedule or when they deem it necessary; you then install (and troubleshoot) these updates to maintain your system; paying for them through your contracted maintenance plan.

Often, the basic license fee gives you a basic version of the system (though sometimes version is a loss-leading free version; see below) with extra pricing increments for specific features or functionality. The size of your workforce – and therefore the number of employee records – can also be an influencing factor on the price of the license.

Though this pricing model is becoming rarer, it is more common with the bigger, more established vendors; perhaps because they’ve been around long enough for it to be have been their only pricing approach, or perhaps because they offer the largest or most intricate system.

Examples of vendors offering licensed HRMS options include SimpleHR, Oracle, and Kronos Workforce.

Finally, bear in mind that neither the subscription or license models give you ownership of the system; the difference is not one of ownership but of access and control.

Free/Freemium

It’s possible you’ve heard of the acronym TANSTAAFL or ‘There Ain’t No Such Thing As A Free Lunch’? If so, you might be cautious when offered a freemium HRMS. And while you would generally wrong to distrust such an offer, it is true that free systems are more basic and/or limited in their scope and functionality. That’s not a ‘catch’ as such, just that you shouldn’t expect everything for nothing (the world just doesn’t work that way, right?).

The good news is that “free” really does mean free. There is no financial cost to you or your business. That said, your investment of time may be more significant as you still need to learn how to use it, teach your people how to use it, and ensure that there is a good fit between the HRMS’s automated processes and your business’s approach to people management.

Furthermore, there are usually limits to the usefulness of any freemium version of an HRMS. Normally those limits are expressed in terms of the number of employee records you can store, or the number of users that can access the system. Or perhaps the support and maintenance is a costed extra.

Examples of vendors offering ‘free’ options include Zoho (for a maximum of 5 employees then it’s subscription), Sentrifugo, and OrangeHRM.

Determining which is the best for business?

The essential pros and cons of each of the three basic pricing options are as follows:

Freemium may be a great entry point to the world of HRMS, and for smaller businesses (less than 50 employees) may be sufficient. Subscription is undoubtedly the current pricing model of choice, accounting for the majority of HRMS contracts and reflecting the global trend for online cloud systems. However, though the license approach may seem a little antiquated, and certainly places more responsibilities on you, the customer, it can still be perfect for larger organizations with bespoke needs due to its broader customization options.

And after all that, a reminder not to forget the hidden costs that come with any HRMS to some extent, regardless of pricing model: installation, data cleansing and migration, user training, implementation consultants, and the labor costs of staff supporting the system.

Whether measured in hard cash or just time and opportunity, these costs are real too. What does your business need?