Advantages and Disadvantages of a Cloud-hosted HR System Over an On-premise Solution

by HRM Software Team

There are two main types of HR systems.

An on-premise solution is a solution that is installed and implemented on the local infrastructure of your company. It is generally managed and maintained by your own IT team.

A cloud-hosted solution is a solution that is managed and maintained on a remote server. To access it, log on with your Internet browser. This type of solution is also known as SaaS (Software as a Service).

If you are in the market for a brand new HR system for your company, you may find it difficult to decide whether to use an on-premise or a cloud-hosted HR solution. You probably ask questions like:
  • What is the most cost-effective?
  • Which is the fastest to set up?
  • Which solution is most reliable?
  • Which is the most secure?

To help you answer these questions, we have compiled a brief comparison of the two main types of solutions, with their main advantages and disadvantages.

Compare the cost of on-premise SS Cloud Hosting HR solutions

How much you ultimately pay for your HR system can be broken down into two main components:
  • Initial costs
  • Running costs

The initial costs indicate how much you will pay in advance, while the running costs represent the regular payments you will make.

The "iceberg" analogy is a good way to explain the cost difference between the two types of solutions.

Here are the parts of the iceberg that you can see above water:
  • Initial cost
  • Subscription
  • License
    An on-premise solution is more expensive from the outset. They typically require a large up-front investment, whereas with a cloud-hosted SaaS solution, you can get started right away with a simple monthly, annual or quarterly subscription.

In terms of visible ongoing costs, renewing your license with an on-premise solution is less expensive than the regular subscription fee for a cloud-hosted solution. Therefore, over time, the visible cost of an on-site solution will be lower than the visible cost of a cloud-hosted solution.

However, as shown in the infographics, these are not the only costs - there are a number of costs that are hidden beneath the surface. For example:
  • Corrections and updates
  • Downtime
  • Ongoing IT costs
  • Hardware maintenance
  • Rewriting integrations

If you don't have a very large workforce with a very efficient internal IT department, a cloud-hosted solution is usually far more cost-effective than an on-site solution.

For most companies, a cloud-hosted HR solution is the most sensible option. Of course, this is not true for all. Here are the key advantages and disadvantages of a SaaS HR system to help you decide which option is right for you.

Key benefits of a Cloud Hosting HR solution

Here are the main advantages of choosing a cloud hosting HR solution:
  • Low entry costs. Getting started with SaaS costs much less
  • Low total cost of ownership (TCO). SaaS solutions don't incur high maintenance costs because all updates and fixes are usually included in the price of your subscription and your local infrastructure doesn't need to be maintained
  • Faster time to market (TTM). With a cloud-hosted solution, the software is ready to go right out of the box. There is no local installation and no time-consuming implementation processes. You could start in hours instead of weeks
  • Flexible pricing. Typically, you can choose a cloud hosting package that includes only the features that meet your business needs, rather than having to pay a very high upfront cost for the software
  • Low risk. Because most cloud-hosted HR systems offer a rolling monthly contract, there is no risk of paying for something you don't use. When you no longer need an HR system, simply cancel your contract
  • More secure. You are legally responsible for protecting your sensitive HR data, and if you don't have the resources to keep your local infrastructure 100% secure, you risk legal consequences and fines. With a SaaS solution, your provider usually covers everything from data protection to penetration testing
  • Automatic upgrades. Whenever there is an update to your HR system, you don't have to shut down your systems for half a day. Your provider works in the background on updates and simply applies the patch to the server as soon as it is ready - in the worst case you have a few hours of downtime, which is only for your HR system and usually occurs overnight.

Disadvantages of a cloud hosting solution

Here are some points to consider before you decide on a cloud hosting HR solution:
  • Internet dependent. A SaaS solution requires a stable connection to the Internet. If your company is located in a place where Internet connectivity is poor, an on-premise solution might be more appropriate
  • Less control. With a cloud-hosted solution, you have less control over the security measures to protect your data. Of course, if your provider uses a reliable hosting provider and offers superior security, backup, and disaster recovery measures, then this is usually not a problem. However, most cloud-hosted solutions offer complete security, and even data-critical organizations like banks will use SaaS providers
  • Less customization. If you're planning to drastically change the way your HR system is coded to fit the specific needs of your business, a SaaS solution unfortunately can't do it - what they offer is what you get

Conclusion

If your main concern is cost, then you should opt for a cloud hosting solution. Likewise, a SaaS solution is the best choice if you want to get started right away. However, if you're in the middle of nowhere and have poor Internet options, or if you want to radically change the code of your HR system, then you should consider an on-premise solution.