How to select HR software for your small business


Selecting an HRMS for a small business could be considered overkill - after all, you’re working with a relatively small team of employees. A fully fledged HR suite doesn’t seem like good value for money if a spreadsheet will hold the necessary data, and all small business HR transactions can be conducted manually? 

So, why should a small business consider using HRMS software? Our guide will outline the advantages of HR software for small businesses as well as features, functions, and requirements you should keep in mind during your selection. We’ll cover:

What are the benefits of HRMS for small businesses?

Let’s take a closer look at some of the compelling benefits an HRMS can offer to small businesses, including:

  1. Secure data and easy access: as an employer you have a responsibility to record employee details and naturally, that includes responsibility for keeping that data secure. With an HRMS that security issue becomes your HRMS supplier’s concern. What’s more, the proliferation of cloud HRMS options and their remote data storage makes a lot of sense, putting your employee information in a safer location than your own premises.
  2. HR advice and guidance: no matter the size of the workforce, an employer must handle a full range of HR-related issues, such as recruitment, performance management, tracking time and attendance, and of course, payroll. But whereas large corporations will create their own systems and procedures, smaller businesses simply don’t have the time. HRMS for small businesses offers built-in systems, procedures and prompts that ensure you’re operating within current employment law.
  3. Improved competitiveness: smoother running people processes translate to improved business performance; not least because of the positive effect on morale that usually comes from a successful HRMS implementation.

Add to these benefits the fact that many small businesses (41% in an OfficeMax survey) find the admin side of their operation the biggest drain on their time, resources and motivation, and it’s clear to see why an HRMS is important to small businesses.

Small business HR software requirements

When considering an HRMS, any buyer needs to start with the issues that the system is intended to address. While any size organization will benefit from an HRMS, there are some issues that are particularly pressing for a small business.

  1. A lack of dedicated HR staff: large HR departments focused exclusively on people processes are not for small businesses. Usually, one manager or board member takes on HR responsibilities as an ‘add-on’ role. This is effectively putting your HR eggs in a single basket. Automation via an HRMS can minimize the impact of your HR lead being absent or engaged with other priorities.
  2. Regulatory compliance: labor laws are subject to change, sometimes frequently, and it can be a full-time job just keeping abreast of employer recordkeeping responsibilities, including healthcare, tax codes, and other legislation, both federal and state. An up-to-date HRMS solution can reduce errors and potential penalties.   
  3. Employee turnover: small businesses can find it hard to compete in the labor market, often losing good employees to offers of higher salaries and better benefits packages. One PwC survey found that 65% of employed workers are looking for a new job. As an investment in your workforce, implementing an HRIS system for small businesses can help you build a more attractive workplace culture.
  4. Performance management: the smaller the teams, the more obvious it is if someone is not up to standard in the role. Many HRMS offer readymade performance management systems that can support managers in addressing underperforming team members.

Factors to consider when selecting an HRMS for your small business

The sheer volume of systems on the market means HR software selection can be a bewildering experience. It helps to examine each system from a series of specific angles, making comparisons (and a choice) easier.

Though it’s not always the most important factor, the price tag is what purchasers tend to look at first. With HRMS, and especially cloud HRMS, the subscription pricing model is by far the most common. This is usually a monthly payment based on either the number of system users or the number of system records.

There are also free options on the market, however, together with the implementation costs (training, staff time, etc.) you may find that the support and service package is extra – “free” is not always free.

Check out our free HRMS pricing guide to find out how much your HR software could cost

Another issue is deployment. Though this guide is focused on cloud HRMS as the most common choice for small business HR, there are on-premises systems available. These usually involve additional hardware and other maintenance costs but if you want your employee data close at hand, it’s an option to consider.

The most obvious factor in HRMS selection is each system’s set of features. Put simply, does it do what you need it to? The next section will cover the range of possible HRMS features.

What features should a small business HRMS system have?

Most HRMS offer the following key features:

  1. Employee record-keeping: secure copies of employee data.
  2. Self-service functionality: allowing employees direct access to their own data (with permission for updates) and to submit basic HR requests such as booking vacation time. Often, self-service is via a web portal, allowing anytime-anywhere access to the system.
  3. Time and attendance: attendance tracking, punching in, management of paid time off, and in some cases, detailed time tracking for shift workers.
  4. Payroll: automated monthly (or otherwise) payroll processes, often drawing on time and attendance data from within the system.
  5. Reporting: use your HR data for strategic and decision-making purposes. Most systems will offer a portfolio of template reports, including attendance, turnover, employee satisfaction, etc.

Here are 52 key features to include in your HRMS in our free HRMS features guide

Many systems also feature the following more sophisticated HR services:

  1. Hiring: applicant tracking systems help manage recruitment campaigns, prompting necessary actions and simplifying the hiring process.
  2. Onboarding: new employees usually have to absorb and apply a great deal of information quickly; the ‘time to value’ period of a new hire can be reduced with automated onboarding.
  3. Benefits administration: benefits enrollment is a time-consuming exercise that can be facilitated by giving direct access to package details via the HRMS.
  4. Learning management: some HRMS support managers to identify and meet employees’ training and development needs.
  5. Performance management: agree on individual employee goals and objectives and then track performance throughout the year.
  6. General communication and messaging: an HRMS can also be an information conduit, allowing business-wide announcements and also encouraging direct communication and collaboration between coworkers.

What is the best HR software for a small business?

The following is a selection of HRMS vendors offering HR software for small companies, in no particular order:

  • BambooHR: BambooHR’s target market is small businesses. The system includes time and attendance, applicant tracking, and performance management. The system’s support for electronic signatures makes for a much less burdensome version of routine paperwork.
  • Zoho People: Zoho is well-suited to micro-businesses; it’s free for up to five employees. The self-service options are comprehensive, including time-off management, collaboration, benefits checking, and medical reimbursement claims. 
  • Namely: Namely caters for workforces as small as 15 but will scale up to 1000s, making it attractive to businesses with ambitious growth plans. Its intuitive social media-style interface makes it easy to use.
  • Gusto: together with payroll and benefits administration, Gusto is strong on automated recruitment processes, including applicant tracking, communications, and onboarding. 
  • Zenefits: the strong focus on mobile access makes Zenefits a flexible option for businesses with remote or field workers. The system features include time tracking, regulatory compliance, payroll processing, benefits, hiring and onboarding, employee record-keeping, and data reporting. 
  • Cezanne: being a little more feature-heavy, Cezanne may be too ‘bulky’ for some small businesses, but it offers a mid-sized company HR experience which is attractive if you have a growth strategy.
  • WebHR: another ‘for-for-up-to-5’ option, WebHR offers the full employee lifecycle of HR services, from hire to retire.
  • Breathe: feature-filled (including attendance and sickness management, training functionality, and extensive self-service options), Breathe offers a try-before-you-buy 14-day free trial. 
  • JazzHR: Jazz is specialized, providing a detailed recruitment package, including posting job advertisements, tracking applications, candidate parsing, interview recording and tools to help with decision-making, and compensation benchmarking.

Deloitte’s Global Human Capital Trends reported that 73% of business leaders see ‘Digital HR’ as a key ongoing trend in HR management. With so many options available, there is every reason for that trend to encompass small business HR needs.

author image
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.

author image
Dave Foxall

Featured white papers

Related articles