HRMS, ERP, payroll, and you

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Once upon a time, HRMS, ERP, and payroll were three separate systems. An HRMS handled all (or potentially all) your people-related processes and procedures, from recruitment to departure. The payroll system automated the nuts and bolts of paying your employees their salaries. And ERP systems were a broader umbrella, designed for the overall management of organizational resources, including finance, people, inventory, and more.

In other words, while they were, and are, separate, there is also a significant degree of functional overlap, providing you with a choice of system depending on your business needs.

If you’re looking to find the best route to automation for your organization, the following information covers the key issues, including:

  • The pros and cons of an integrated HRMS module in ERP vs standalone systems
  • Functionality
  • Payroll management: should you use ERP or HRMS?
  • Recommended vendors

Find the right system for your project using our free HRMS requirements guide and features list

Integrated HRMS module in ERP vs Standalone HRMS

As with any system, both standalone HRMS and HRMS integrated ERPs have their advantages and disadvantages.

The advantages of an integrated HRMS module in ERP vs Standalone HRMS

HRMS integrated with ERP Standalone HRMS
  • Easier tracking of data and workflow across various teams and departments.
  • Data is more easily accessed from individual modules (e.g. HR, finance and accounting, manufacturing, marketing and sales, supply chain and warehouse management, CRM) for synthesis, resulting in better quality reporting.
  • Reduction in data input (i.e. no need to enter in multiple systems).
  • Reduction in staffing costs through not running dual systems or duplicating data input.
  • No need for a patchwork of databases, files, and even spreadsheets.
  • Designed from the ground up with HR and people processes in mind, a dedicated HRMS will usually do a better job.
  • A single system usually means less business risk; i.e. the impact of changing system or vendor in the future is reduced compared to changing a system that ‘does everything’.
  • System implementation and deployment is usually quicker.
  • A standalone system often has more opportunities for customization.

 

The disadvantages of an integrated HRMS module in ERP vs Standalone HRMS

HRMS integrated with ERP Standalone HRMS
  • Not built with HRMS in mind, but for the overall enterprise so could have reduced functionality (more on this below).
  • It’s more difficult to customize a full system, and riskier if a customization goes wrong.
  • Increase in employee training; staff need to learn how to work the HRMS (self service or full system) as well as your ERP.
  • Increased strain on IT department to handle multiple platforms and systems to support different departments.

Functionality

As already mentioned above, an ERP offers management of the full spectrum of organizational resources and will likely cover areas such as finance and accounting, manufacturing, marketing and sales, supply chain and warehouse management, CRM, and of course, human resources.

From the HR point of view though, an ERP’s functions may seem restricted, perhaps including the creation of job descriptions for recruitment, timesheet management, basic tracking of the stages of the performance management process, registering training requests, and standard analytics or reporting.

On the other hand, an HRMS may offer the following features:

  • Recruitment management – including the creation of job descriptions, resume parsing, candidate sifting, automated communications with candidates, and multi-channel job advertisements. 
  • Employee onboarding
  • Time and attendance management
  • Workforce scheduling
  • Performance management processes, including automatic tracking of annual reviews
  • Learning management
  • Talent management, including succession planning
  • Payroll, including processing expenses and claims
  • Benefits management
  • Predictive analytics

When deciding between an ERP HR module and a standalone HRMS, the deciding factor is always your business needs. You need to identify exactly what benefits and functions you need, and why. Furthermore, you need to determine exactly what measurable returns on your investment you’re expecting.

Could an integrated HRMS module, with its often limited functionality, do the job?

Most ERP systems include an HR module. If your HR requirements are straightforward and unlikely to change for a few years, an ERP will probably be sufficient. That said, remember that ERPs are not designed primarily with people processes in mind – they tend to be a ‘jack-of-all-trades’ solution, master of none.

Also, organizational size may be a deciding factor. Generally speaking, ERP systems are designed to manage large, complex operations, and small to medium-sized businesses may find an ERP to have limited flexibility, requiring you to customize your HR processes to fit the ERP.


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Payroll management: should you use ERP or HRMS?

Payroll is a crucial component of your HR function; every employee wants to be paid accurately and on time. Payroll errors result in costs to both employers and employees, and those expand beyond simple financial costs, including damaging employee satisfaction and morale. It’s reported that 54% of American workers have experienced problems with their paychecks impacting roughly 152 million workers. Payroll becomes even more complex when you take into account regulatory compliance and routine changes to regulations; that’s where automated processes can help an employer avoid risk.

The benefits of automating your payroll include:

  • Fewer payroll errors (and nothing has the potential to enrage an employee quite like a payroll error) – regardless of other benefits, salary is the primary element of the employer’s side of the deal; get it wrong and there’s now a crack in the very foundation of the employer-employee relationship.
  • Greater efficiency – quite simply, automation saves time and effort, freeing up members of your payroll (or HR) team to tackle less repetitive work.
  • Better security – in comparison to a paper system, your payroll data is more secure by being encrypted and protected by a password.
  • Improved compliance – this is especially true if you’re a multi-territory operation, subject to different legislative and taxation regimes. Once set up, an automated system will keep track of the ‘must-do’s and milestones, keeping you on the right side of the applicable employment and financial laws.

Payroll can be a complex topic and the right automation solution can greatly simplify the process. The question is, what kind of system should you use? Your options are an HRMS or ERP with payroll functionality, standalone payroll & accounting automation software, or just outsourcing to a third-party payroll provider and letting them worry about the technology. The answer depends on the needs of your organization, of course, though two broad issues may help with a decision:

1. Integration

An ERP effectively works from a single database, one that goes much further than just ‘people data’. This broader access means that all necessary data sources for payroll are included and available. For example, a request for training may trigger other tasks or issues, such as removing the employee from the work schedule on the day of training or allocating relevant supplements to their rate of pay.

2. User experience

An HRMS is often regarded as more user-friendly (for people processes) than an ERP. For example, in response to regulatory or legislative changes, it’s often quicker and easier to implement those changes in a dedicated HRMS.

These systems are often implemented from a user-centric point of view as they are exclusively focused on the HR user base, rather than an ERP which needs to please users from various disciplines such as manufacturing, financials, etc.

That said, the advantage of ERP payroll is that financial data (e.g. account codes, project codes, or currency conversions) are usually easily and quickly accessed from within the system, making the payroll process simpler to run.

Payroll can utilize the data from the ERP in the HR module without extra effort, however, this can be a drawback: as neither HR nor payroll ‘owns’ the data, depending on your policies and procedures, it may require additional efforts or time to get a new data element such as a new cost center established and available compared to HRMS, since HR usually owns the data entry and it will be more streamlined.

Standalone payroll and accounting software options are likely to be fit for purpose, having a dedicated focus on your financial affairs. A range of packages is available – e.g. QuickBooks and CloudPay – offering the functionality required for various business sizes, from local SMEs to global behemoths.

Whatever your chosen option, your automated payroll system should incorporate the following functions:

  • Tax filing in line with your territory(-ies) of operation.
  • Employee data tracking.
  • Time and attendance tracking (or, if time and attendance are covered by another system, integration with that system).
  • Employee self-service functions (at the least, access to online paychecks and the capability to update personal details).
  • Management of any wider reward or reimbursement package (e.g. handling annual bonuses).
  • Reporting options.

When choosing a system it’s important to remember to make processes easier for those using it, including regular employees, which means looking for systems that offer employee self-service, mobile access, notifications and alerts, and more.

Employees should easily understand a payroll system, including accessing and understanding their pay stubs. An HRMS can monitor benefit management, as well as tax deductions to provide better visualization to employees on their take-home earnings. This is especially useful considering 45% of workers would feel more engaged if their employer could help them understand taxes and deductions to their earnings.

The bottom line question regarding payroll automation is basically, do you need it? The simple answer is, probably yes. If you’re a small organization with a limited workforce then handling payroll ‘by hand’, working from spreadsheets, is possible and may even seem less trouble. However, the larger the workforce, the more you’ll appreciate software or services that ease the payroll headache. If your business strategy includes growth then implementing a payroll system as early as possible (one that can grow with you and your workforce) is only wise.

Recommended vendors

Though your requirements will, of course, vary, the following is a short list of well-established vendor options:

NetSuite: originally an accounts system, NetSuite (part of Oracle) now offers a full range of ERP functions with CRM and HR features.

APS: APS (or Automatic Payroll Systems) have a predictably strong focus on payroll management. This human capital management software includes streamlined payroll functionality fully integrated with everyday HR processes.

BambooHR: fully integrated with their open-source HRMS, BambooHR seeks to simplify the payroll process without undermining its accuracy or efficiency.

WorkWise: an on-premises ERP aimed at mid-sized businesses, WorkWise offers ERP functionality without HR.

Infor HCM: a full HR module that can be seamlessly integrated with Infor’s ERP.

QuickBooks: Established in 1983, the longstanding QuickBooks is a pure payroll platform focused on the needs of small to medium-sized businesses. Available in both on-premises and cloud versions, QuickBooks offers versions for different English-speaking territories: the US, UK, Canada and Australia.

CloudPay: As the name suggests, CloudPay is a dedicated payroll system and is firmly cloud-based, seeking to offer high quality payroll management services to global businesses from its offices in the US, Europe and Asia.

This article was originally written by Heather Batyski.

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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

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