Where to Start with HR Tech: the HRIS
If you employ people, you’re going to need some form of an HR Information System, or HRIS. This is the system that serves as the source of truth for all of your employee data (titles, start dates, compensation history, etc), and handles some basic (but not simple!) functions like payroll. In theory, you could run payroll manually and store all of your employee data in a folder somewhere, but I can’t think of a single example where that’s a good idea. Modern payroll functionality handles the calculations involved in paycheck deductions, and is far more scaleable - you might be able to get away with running payroll for one or two employees by hand, but by the time you’ve got 10, you’ll spend all of your time doing nothing but payroll, and making mistakes in people’s pay is a recipe for hefty fines.
The range of options for an HRIS is wide - the HR tech market is saturated and there are options for everything. The best in class option is Workday, but I’ve never seen a use case for a small business that justified the investment (you can expect to spend $20k or more on an annual Workday subscription). For a small business (<20 people), there are three approaches I’d consider:
HRIS/Payroll tools designed for small to mid-sized businesses: BambooHR, HiBob, Gusto, and “the Pays” (Paychex, Paylocity, and Paycom) are some of the names here. These can be low cost, and are often priced by headcount, so you’ll pay something like $25 per employee per month. These are tools that are designed to scale and are often used by organizations with 100 or even 200 employees - I’ve heard of companies with over 1000 people using HiBob - so investing early means you’re well set up to grow, but the pricing structure means you’re not overinvesting when cash is tight.
Barebones payroll solutions like Quickbooks or ADP Run. These often are selected because it’s an easier set up, especially for small teams that might already be using Quickbooks for accounting or that already stores employee data in a secure folder, so they’re focused on just the payroll piece of functionality. The challenge with both of these is that they’re very narrow solutions - they often only do payroll. They might be easier from a Finance side, but they don’t scale well, and they don’t offer the same integrations and employee self-serve options. If you search for these, you’ll also see tools like Gusto and BambooHR appear as competitors, and to my mind, those are better options that allow for growth and customization to better fit your needs beyond payroll.
Professional Employer Organizations (PEOs) such as Insperity, Justworks, or ADP TotalSource. These are full-service options that will include an HRIS solution in addition to benefits offerings, performance management tools, applicant tracking, and compliance support. Working with a PEO means that you are entering into a co-employment relationship with the PEO, and they share the risk in employing people. They will take care of some of the administrative tasks, such as registering with various states where you employ people, and ensuring that you’re following current legislation. They also provide Employment Practices Liability Insurance, which means you’re covered in the event that an employee makes a claim. A PEO can be a great way to offer generous medical insurance at lower premiums, and for risk-averse companies, the compliance coverage can be very reassuring. You do give up some control though: PEOs often expect to be included in termination decisions, you may not be allowed to bring your own benefits, and they often retain control over employee data, so when there’s an error, you need to work with their support teams rather than fixing it yourself. In my experience, PEOs can be hit or miss, and you have to stay on top of managing that vendor relationship because they have more control over your employee data and employee experience. They’re also more expensive (often priced as a percentage of total payroll), as they’re offering a lot more than just a technical solution.