Pros and Cons of a Cloud-Hosted HR System vs an On-Premise Solution

There are two main types of HR system.

An on-premise solution is one that is installed and implemented on your company’s local infrastructure. This is generally managed and maintained by your own IT team.

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

If you’re in the market for a brand new HR system for your business, then you might be struggling to decide whether to use an on-premise or a cloud-hosted HR solution. You’re probably asking questions like:

  • Which is least expensive?
  • Which is fastest to setup?
  • Which is most reliable?
  • Which is most secure?

To help you answer these questions, we’ve put together a short comparison of the two main types of solution, along with the main pros and cons.

Comparing the Cost of On-Premise VS Cloud-Hosted HR Solutions

How much you end up paying for your HR system can be broken down into two major components:

  • Initial Cost
  • Ongoing Cost

The initial cost represents how much you are going to pay up-front, whereas the ongoing cost represents the regular payments you are going to be making.

As you can see on the infographic, the “iceberg” analogy is a good way of explaining the difference in cost between the two types of solution.

Here are the bits of the iceberg you can see above water:

  • Initial Cost
  • Subscription
  • Licence

Straight away, an on-premise solution is more expensive from the get go. They generally require a big upfront investment, whereas a cloud-hosted SaaS solution lets you get started straight away with a simple monthly, yearly or quarterly subscription.

Regarding visible ongoing costs, renewing your licence with an on-premise solution will be cheaper than the regular subscription fee for a cloud-hosted solution. Therefore, over time, the visible cost of an on-premise solution is lower than the visible cost of a cloud-hosted solution.

However, as shown in the inforgraphic, these are not the only costs – there are a number of costs hiding beneath the surface. For example:

  • Fixes & updates
  • Downtime
  • Ongoing IT costs
  • Hardware maintenance
  • Rewriting integrations

Generally speaking, unless you have a very large workforce with a very efficient in-house IT department, a cloud-hosted solution will actually carry far less costs than an on-premise solution.

For most businesses, a cloud-hosted HR solution is the most sensible way to go. This isn’t the case for everyone, of course. Here are the main pros and cons of an SaaS HR system, to help you decide which option is right for you.



Core Advantages of a Cloud-Hosted HR Solution

Here are the main benefits of choosing a cloud-hosted HR solution:

  1. Low Cost of Entry. SaaS costs a lot less to get started.
  2. Low Total Cost of Ownership (TCO). SaaS solutions carry no heavy maintenance costs as all updates and fixes are normally included in the price of your subscription, and there is no need to maintain your local infrastructure.
  3. Faster Time to Market (TTM). With a cloud-hosted solution, the software is ready-to-go straight out of the box. There is no local installation to handle, and no time-consuming implementation processes. You could get started in hours instead of weeks.
  4. Flexible Pricing. You can generally select a cloud-hosted pricing package that includes only the features which suit your business needs, rather than having to pay a very high upfront cost for the software.
  5. Low Risk. Because most cloud-hosted HR systems offer a rolling monthly contract, there is no risk of paying for something you do not use. If you no longer need an HR system, you simply cancel your contract.
  6. More Secure. You are legally responsible for protecting your sensitive HR data, and if you do not have the resources to keep your local infrastructure 100% secure, you could risk facing legal consequences and fines. With an SaaS solution, your provider will generally cover everything from data backups to penetration testing.
  7. Automatic Upgrades. Whenever there is an update to your HR system, you won’t need to take your systems down for half a day. Your provider will work on updates in the background, and simply apply the patch to the server once ready – at worst, you’ll have a couple of hours downtime that applies only to your HR system, and that generally occurs overnight.

Disadvantages of a Cloud-Hosted Solution

Here are a few points you should keep in mind before choosing a cloud-hosted HR solution:

  1. Internet Dependent. An SaaS solution will require a stable connection to the internet. If your company is in a place where internet connectivity is poor, then an on-premise solution might make more sense.
  2. Less Control. You have less control over the security measures taken to protect your data with a cloud-hosted solution. Of course, if your provider uses a reliable hosting provider, and offers superior security, backup and contingency measures, then this doesn’t tend to be an issue. Most cloud-hosted solutions run airtight security, however, and even data-critical organisations like banks will use SaaS providers.
  3. Less Customisation. If you are planning on drastically changing the way your HR system is coded to suit specific organisational requirements, then unfortunately, this is impossible with an SaaS solution – what they offer is what you get.

In Conclusion

If your main concern is cost, then you should opt for a cloud-hosted solution. Similarly, an SaaS solution is the best choice if you want to get started right now. However, if you are based in the middle of nowhere with poor internet options, or if you want to radically customise the code of your HR system, then you might want to consider an on-premise solution.

Guest Author:

Sat Sindhar

Sat Sindhar has been working in the HR software industry for over 25 years. His company, People® – , is the fastest-growing HR system in Europe, and offers business owners and HR professionals the tools they need to make a big positive impact with HR.


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