Whether you work in human resources or not, the chances are that you have interacted with an HR system in some form or another.
HR workers benefit from the efficiencies they bring, managers benefit from the streamlined people services, and employees benefit from HR self-service, allowing them to focus on the job they are paid to do.
Choosing an HR system for your organization can be a minefield; this article discusses what HR systems are, the different types of HR systems, how to choose one, and how to manage it once it’s in place.
What are HR systems?
HR systems are designed to facilitate the application and operation of HR functions in organizations. Their aim is to improve efficiency, reduce risk, manage employee data and allow HR teams to think strategically and keep employees engaged.
They primarily refer to software and cloud-based applications, and while they have been used for some time, they have really come into their own in recent years. The reason for this is that HR systems can now cover many different aspects of the day-to-day employee lifecycle, such as benefits administration, learning management systems, payroll, recruitment, and time and attendance, as well as being able to integrate with finance systems.
The main types of HR systems
HR systems serve many different purposes, but they can be grouped into three distinct types, based on their various overarching functions and complexity, according to HR expert Mike Maiorino.
These are:
- Human resource information systems (HRIS)
- Human capital management (HCM) systems
- Human resource management systems (HRMS)
In this section, we’ll explore each of these in turn.
1. Human resource information systems (HRIS)
The HRIS is designed to manage “people, policies and procedures”. Typically, this encompasses the following areas:
Recruitment and applicant tracking
The large majority of organizations advertise their job vacancies online now, using the digital medium to target potential talent in increasingly creative ways.
HRIS allows businesses to accept and process these online applications easily, referring them to the relevant departments and managers for review. It also offers time-saving benefits, as unsuitable candidates can be filtered much more easily than if a person was physically sifting through paper applications.
Training and development
While HRIS can’t provide actual training to employees, it can be used effectively to set goals and track progress. Many businesses use it to direct staff to external online training aids and portals, and to provide key information about the company and its policies to new employees.
Having a clear outline of training goals allows businesses to be confident that their people are developing and are taking individual accountability for that development.
Open enrolment and benefits administration
For a manager, individually explaining benefit options to every single member of staff can feel like hitting their head against a brick wall. On the flipside, employees can feel pressured into choosing the wrong benefit option during a rushed one-on-one meeting.
The solution, therefore, is simple: to provide clear information (ideally with an FAQs section) on the HRIS, as well as an easy-to-use enrolment page. This allows managers to focus on answering trickier and more specialized benefits queries.
It also has the additional benefit of saving on paper and mailing costs, and minimizing form mistakes — a win–win all around.
Compensation management
This is a key aspect of business management that really benefits from the HRIS system. In most businesses, members of staff are paid different salaries to reflect their experience or performance; it can be tricky to keep on top of this without making errors.
HRIS mitigates this and even provides an analytics capability, linking to performance reviews and assessments to make compensation decisions much easier. It can also link to benefit administration, permissions and job codes — all things that might change when an employee’s salary increases.
Additionally, it makes it easier for businesses to be transparent with their salaries — a hot topic currently, with companies under pressure to show they’re addressing social and political concerns (such as the gender pay gap, for example).
HR reporting
Rather than trawl through individual records, HR reporting allows management or senior figures to understand various breakdowns of employee data quickly, clearly and efficiently. Workforces can be sorted by any number of criteria, such as by location, age or seniority — these details can again be useful for transparency purposes, as well as allowing a company to understand the make-up of its staff.
Management can also request accounting reports related to payroll (although they would need certain permissions for this), as well as paid leave reports, sickness reports or any other criteria they require.
Workflow
Within the context of HRIS, workflow relates to tasks such as hiring, firing, promoting and training. HRIS improves these processes by implementing “approvals” into the system.
For example, if an employee is being promoted, the process can’t move forward until the relevant manager has approved it on the system. This means that the promotion system isn’t relying on just hoping that people see and respond to emails.
It should be noted that these processes and structures need to be evaluated and fine-tuned before they’re turned over to a HRIS, as they otherwise won’t be efficient. Once in place, though, the automation of the system can save a lot of time and money.
Self-service (for applicants, employees and managers)
The self-system service is primarily beneficial for employees, making it infinitely simpler to manage administrative tasks such as submitting leave requests and updating personal details. When used properly, though, it can also highly benefit managers.
Those leave requests can link instantly to staff rosters, allowing management to approve or deny instantly; they can also communicate important notices to staff, ensuring they will be seen and not lost in translation.
Interestingly, it also streamlines feedback capability — handy for companies who are constantly extolling the virtues of a frequent and regular feedback system. Managers can simply rate certain performance factors rather than construct entire reports for each employee.
Additionally, job applicants can register all their details and relevant information in one place, editable as required; this also allows the company to keep the applicant updated on the status of their application, providing benefits for both parties.
2. Human capital management (HCM) systems
The second of Maiorino’s categorizations is HCM, or human capital management. Maiorino suggests that HCM contains all the capabilities of HRIS, but with “the added benefits of talent management services and more global capability”.
Here are some key solutions in HCM:
Onboarding
When new employees join a company, they’re bombarded with forms to fill out, briefs to attend and training to conduct
With the HCM capability, companies can instead conduct the onboarding process digitally, by sending training and integration materials that the new hire can look through in their own time, asking any questions they may have via email. This saves time and effort for both them and the company.
Performance and goal management
Employee performance reviews are a driving force of many businesses these days, and HCM creates a format that allows for an in-depth review from peers, colleagues and managers with ease. This paints a much clearer picture of an employee’s performance, allowing management to make better decisions regarding rewards.
A higher frequency of reviews is also preferable to one or two annual sit-downs, and the negative connotations that come with this. Development points can be highlighted a lot quicker; as a result, management can identify any training needs and address issues rather than let them drag on until the next appraisal date.
It also improves the logistics involved, allowing staff to easily compile and store their review history — a highly useful tool for professional development.
Position control / Budgeting
Personnel management is another important aspect of HCM, especially in larger organizations where staff headcounts are much higher. Knowing where positions need to be created in the company — and managing and allocating the funding to enable this — is something that is again made easier with HCM software.
If a manager feels they need another body on their team, they can utilize data reviews in other parts of the system, merge it with the information available here, and present a strong case to budgeting managers to approve their request.
Succession planning
HCM (and HRIS) systems are perfect for identifying which talent to utilize when previous incumbents of roles leave or retire; decision makers can analyze performance reviews as well as other available data to identify suitable successors.
The system benefits employees, too. Rather than dictating set career paths to staff, companies recognize that workers want control over their destinies; they can now submit their own goals and aspirations clearly and formally to management.
If a role becomes available, and a suitable candidate has expressed an interest in working in that department, then it becomes an easier decision and a win–win for everybody.
Global HR
HR management is one thing when it’s a small to medium company in one location. But when it’s a global giant, with offices and sites in a large number of international locations (complete with the cross-border regulatory issues that this may cause), it becomes a totally different animal.
This is where cloud solutions come in, allowing businesses to consolidate all their HR capabilities into one system, regardless of jurisdictions. The best vendors take into account every industry regulation and labor agreement in each territory so that staff don’t have to — this allows internal standardization and compliance right across the board.
3. Human resource management systems (HRMS)
The third piece of Maiorino’s HR puzzle is the human resource management system, or HRMS. He assesses that this encapsulates a wide range of resources that have already been mentioned, but that the two main identifying factors of a HRMS are these:
Payroll
Payroll, in many ways, is the most important part of the business — at least for employees! But it can also cause headaches (or even legal problems) for business owners, too, especially if they file taxes incorrectly or pay the wrong amount to the wrong government organization. Therefore, a robust and effective payroll software system is invaluable to many businesses.
In most cases, management simply input an employee’s salary and working hours, and the software does the rest. Tax laws are automatically updated and the system will remind the owner when certain forms need to be submitted, providing huge peace of mind — especially for small businesses.
Time and labor management
Most companies are interested in keeping track of what employees are doing with their time — and not just to ensure they’re working hard. Understanding where resources are being concentrated can allow management to make decisions about whether something is receiving too much or too little attention, as well as calculate fees to clients based on how many hours a particular project took.
HRMS systems simplify this process, allowing workers to log their hours easily (or through a supervisor, depending on the company’s own policy). This provides invaluable quantifiable data to companies who can assess employee behavior and performance, and the effect it has on the company’s overall performance.
How to choose the right HR system
Choosing the right HR system needs to be a careful undertaking, given the cost and importance of the software. Here’s a list of the five main things to consider when choosing the right HR software solution:
1. Assess your needs
The first step in choosing an HR system is to critically assess your needs. With HR systems being able to take on many different areas of HR management and, in some cases, handle most of it, take time to think about what support your organization needs, whether it be performance management, benefits, and so on.
You must also consider the setup of your people department to understand who will be using HR systems and in what ways, and how large your organization is as well.
2. Consider its user-friendliness
People considering an investment in an HR system should also consider the complexity of the system and how user-friendly the interface is; some can be very challenging to use.
For example, if you operate a shared service or self-service HR function, then plenty of non-HR users will need to use the system and will have a much shallower understanding of how they can be used. Similarly, if your HR department is mostly made up of more junior employees, factor this into your decision-making as well.
3. Look at cost versus value
HR systems can be a significant investment for organizations. Some HR system contracts in larger organizations can run into the millions of dollars.
When evaluating the cost of your HR system, think about not only the outright cost but also long-term expenses and the value it might bring in terms of gains in efficiency or productivity. Do research into how much expense will be needed to maintain the system and keep it competitive and secure to use.
4. Consider its scalability
Keep in mind that your organization might grow over time and, in some cases, especially with startups, this growth can be sudden and extreme.
When choosing an HR system, investigate how scalable it is. If it fits your needs now, with say 100 employees, will it be as easy to use and affordable for 1,000 employees in a few years’ time?
Think also about the changing needs of your HR processes, and whether your system can adapt to what might be needed in the future.
5. Scrutinize integration capabilities
When choosing an HR system, take time to think about whether it can run alongside any existing systems and processes that you have. Even if these can be adapted to the new system in any way, be cautious, as this might take considerable time and expense, as well as cause unnecessary disruption to the users.
Additionally, think about non-HR systems, such as accounting software, as HR systems will need to synchronize perfectly with these. Ask the right questions to the vendor, and consider going with a trial if you’re not sure if the system will work or not.
How to manage your HR system
HR systems are complex and can bring a lot of benefits to your organization but only if they’re used and managed in the right way. Here are five tips on how to manage your HR system for maximum impact and benefit to your employees and company.
1. Train your users
HR systems are only as strong as the people using them, and if they don’t have the right HR system skill set, this can cause confusion or even serious errors.
Ensure you provide ongoing support for HR and non-HR users of the system, including nominating on-site champions and access to remote support channels. Provide refresher training and orientation support for new users, as well as update everyone’s knowledge if the system is refreshed or new features are added. Establish processes to encourage users to share best practices as well.
2. Audit the data
Given that one of the main purposes of HR systems is to simplify the processing and analysis of HR information, a great deal of data will be passed through them. It’s vital that you establish processes to check this data and ensure that the system is handling, processing and analyzing it correctly.
Blindly trusting your system — or the people inputting data into it — can lead to mistakes and significant, costly challenges for your organization. Establish auditing procedures that are carried out consistently to proactively address this.
3. Keep it updated and check for errors
Like any software we use, HR systems will need to be updated from time to time. Ensure you research these updates and let them run without delay.
Updates to HR systems are critical, as they might install new data security measures, data management systems, or simply better interfaces or new ways of using them. Keeping your system up to date ensures its security, but maintaining it is also important. Train the users of your HR system to keep an eye out for errors and report any abnormalities to the support team without delay.
4. Customize it to your needs
Many HR systems are super-smart and can be used in many ways. Often, when they’re installed, basic primary purposes are primarily trained, with much of the system’s potential left to one side.
Research the various ways your HR system can be used, and establish best practice teams to investigate how it can be used to truly benefit your organization. Ensure user guides are put in place and the system is used consistently by all users to maximize its potential.
With a little curiosity and time in the “test” mode, you’ll be surprised by how much your HR systems can be customized!
5. Keep data security top of mind
The most critical factor in managing your HR system is to ensure it’s used safely and securely. Train its users on information security, and establish procedures that concern the safe handling of employee data in line with the Privacy Act of 1974.
Review these processes periodically to make sure they’re still compliant with data laws and fit for purpose in your own organization. Ensure beneficiaries of the HR system know how their data is being used and handled, and there are provisions for them to access their data and control it once they have left the organization.
Key takeaways
HR systems are an increasingly popular, efficient and cost-effective way to manage HR information. If you’re considering using an HR system, here is the key information to know about them:
- A HR system saves time, allowing HR teams to safeguard data, work smarter and use HR information to benefit the wider business.
- There are three main types of HR systems: HRMS, HCM and HRIS.
- When looking to buy an HR system, ensure you research what you need from it before you go ahead.
- Ensure your HR system is aligned to your business and future-proofed for its growth.
- Ensure your people are trained on how to use HR systems and are using them correctly.
- Audit your HR systems for errors, security compliance, accuracy and the need for updates.
HR systems can be highly beneficial to your organization as long as they’re aligned to its needs and managed in the right way. Get this right, and you’ll be able to reap their advantages.
Got a question? Let us know in the comments section below!
This article is a partial update of an earlier version originally published on December 8, 2017, and contains contributions by Siôn Phillpott.
