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Navigate the diverse landscape of HR and payroll systems with OutSail's comprehensive guide. From traditional on-premise solutions to cutting-edge cloud-based platforms, discover the types of systems shaping the future of workforce management.
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The HR and Payroll software market is incredibly crowded. If you visit a review site, such as G2, you will see over 80 software vendors that provide payroll software.
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How is one supposed to make sense of all of those options and identify the best HR and Payroll software for their needs?
It's important to first understand that all payroll platforms are not made equally. Some are designed for very small teams. Some are light on technology, but heavy on service. Some are great for global payroll. And some are designed for the world's largest enterprises.
To make things simple, we will focus on four types of payroll solutions in this article
What is a PEO?
PEOs offer the most unique solution in the HR and Payroll industry. A PEO is mechanism by which smaller companies can outsource their payroll & HR functions, decrease their benefit costs and ensure compliance.
If you are the owner of a 10-person company, you'll spend a lot of your time ensuring employees are properly paid and hoping that you're staying compliant along the way. And if you want to offer benefits to your employees, you'll pay the highest rates on the market, because you have little leverage with the insurance carriers.
A PEO solves this problem by pooling hundreds of small employers onto one super-entity. By putting one thousand 10-person companies together, a PEO can get much better benefit rates for it's members. Additionally, since your employees are now technically employed by the PEO vendor, they will take responsibility for your compliance management, payroll processing and tax filing.
Examples of PEOs:
What are standalone payroll platforms?
A standalone payroll platform is just what it sounds like. It is a technology solution for processing payroll, but one that does not provide a high degree of HR-related functionality.
Traditionally, a standalone payroll platform will be used by companies that have another tool already in-use for their HR needs. Many standalone payroll tools will be lean and stripped down, compared to other categories in this report. Additionally, these types of solutions are often serviced by a payroll processing team, such as a CPA firm or HR consulting firm, who will provide a layer of compliance and tax support.
Examples of standalone payroll platforms:
What are HR-Centric Payroll Platforms (SMB)?
HR-Centric Payroll Platforms can also be called Human Resources Information Systems (HRIS). While these solutions do offer payroll processing capabilities, it is their broad HR-related functionalities that distinguish them from the previous group.
In addition to having a payroll module, these tools will also have a benefits administration module, recruiting and onboarding tools and performance management solutions.
This segment of the market is designed for small and medium sized businesses (SMBs) and are typically good for businesses until they have 150-250 employees, at which point, they might need to upgrade to the next tier.
Examples of HR-Centric Payroll Platforms (SMB):
What are HR-Centric Payroll Platforms (Enterprise)?
Just like the previous group of vendors, these solutions are distinguished by the fact that they can do more than just process payroll. These solutions can provide functionality to support employees from the day they are hired to the day they retire.
These solutions are typically highly configurable, meaning businesses can create their own rules, automations and workflows to achieve greater efficiency. These types of solutions are designed for companies with 200 employees all the way up to the largest companies in the world. These types of solutions can be harder to implement and more costly, however.
Examples of HR-Centric Payroll Platforms (Enterprise):
A Professional Employer Organization (PEO) is a unique solution that allows smaller companies to outsource their payroll and HR functions, reduce benefit costs, and ensure compliance. Unlike standalone payroll platforms, PEOs pool multiple small employers together to leverage better benefit rates and take responsibility for compliance management, payroll processing, and tax filing.
Standalone payroll platforms focus solely on payroll processing and may be used by companies that already have other HR tools in use. On the other hand, HR-centric payroll platforms, whether for SMBs or enterprises, offer a broader range of HR-related functionalities such as benefits administration, recruiting, onboarding, and performance management in addition to payroll processing capabilities.
Examples of HR-centric payroll platforms suitable for SMBs include Gusto, Paychex, Zenefits, Rippling, Paylocity, Paycom, and Paycor. These platforms are designed to meet the needs of small and medium-sized businesses with comprehensive HR and payroll capabilities.
HR-centric payroll platforms designed for enterprise-level companies offer highly configurable solutions to support employees throughout their entire employment lifecycle. Examples include ADP, Workday, Ceridian, and UKG (Ultimate Kronos Group). These platforms are suitable for companies with 200 employees and above, providing advanced features and scalability to meet the needs of large organizations.
When choosing between different types of HR and payroll systems, companies should consider factors such as their size, specific HR needs, budget, scalability, level of customization required, and the complexity of their payroll and compliance requirements. Assessing these factors can help companies determine which type of system best suits their needs and supports their growth objectives.
