HRIS vs. HCM Software

August 27th, 2021 12 min read

All too often, Human Resource digitization and development feels like an afterthought, with consequences for businesses and employees alike. HR is a foundational aspect of acquiring, retaining, and getting the most value out of your personnel, and HR software plays a crucial role in enabling success.

One obstacle to modernizing HR processes can be confusion over what kind of product can best fit your needs. The confusion around different HR software options is understandable since there’s a substantial overlap between what various product types offer. In particular, HRIS and HCM products both fall under HR management software, but are not identical product lines. A Human Resource Information System (HRIS) is the foundational system of record that underlies “core HR” functionalities that all businesses need, while Human Capital Management (HCM) suites provide a broader set of strategic HR functions on top of core HR. While there are still robust HRIS-only options, HCMs have become the most prevalent product.

What is an HRIS?

At its core, an HRIS is a central repository of employee data, including professional and relevant personal data like addresses and direct deposit data. This data source is used to enable HR functions that every business uses, such as payroll, personnel tracking, and benefits administration. HRIS is sometimes referred to as a Human Resource Management system, but the term has fallen out of favor with most vendors and HR professionals.

When do I need an HRIS?

As discussed above, every business needs an HRIS or some sort of employee data records. A better question would be, when do you only need the core HR functions based on an HRIS? In general, only startups and small businesses are ideal users for Core HR products. In these cases, the more strategic HR functions like talent management and applicant tracking are more intensive than what you need.

That said, you still want to automate and digitize processes like payroll, benefits administration, and time tracking. You may also not have a full HR team or even dedicated HR personnel. In these situations, core HR products can help give you valuable time back in your weekly, or even daily, schedule and mitigate the risk of human error.

Adding the power of databases and software solutions to HR services is an incredibly useful tool. These tools are designed to make the day-to-day lives of HR professionals easier. This includes easier compensation management, using direct deposits, and other systems. The major difference with other systems is this is primarily a time-saving type of software. These services function like having the world’s most organized army of interns, freeing your HR professionals to do more specialized work.

If that sounds like you, some core HR Management products include TriNet, Gusto, and RUN Powered by ADP.

The Growth of HCM Suites

Many HR management products, including core HR products, have grown into Human Capital Management suites, which are generally one-stop-shops for a business’s HR needs. The HCM model’s growth is indicative of a unifying trend in HR to centralize and integrate all HR processes and data into singular platforms for users and administrators alike.

As the needs of modern workplaces evolve, such as higher expectations for companies to engage employees rather than the other way around, HCMs have developed features to facilitate that process. This growing web of HR processes and features also makes finding the right software for your business needs a greater challenge.

What is an HCM suite?

Broadly speaking, an HCM is a core HR foundation with a broader array of modules targeting strategic HR tasks. Performance management, recruiting, and learning management are all common modules within HCMs. These modules are usually customizable and individually selectable, meaning you can pick and choose which modules your business needs.

The specific modules offered vary by product, but the trend is for the suite to offer all the features and capabilities a business of any scale would need to support its HR processes. However, this expansion, and the growth in complexity and price that can accompany such expansion, isn’t necessarily for everyone.

When do I want an HCM?

HCM suites can be pricier for smaller organizations, and the market often focuses on midsized businesses and enterprises that need larger and more comprehensive HR software. For small businesses, Core HR management suites or a collection of point solutions may meet your needs.

That said, as businesses grow in size and complexity, expanding to an HCM is a near certainty. One signal is the level of long-term thinking your organization is doing. If your 1-5 year plans turn into 5-10 year plans, factors like succession planning and career path development become more relevant and impactful. This also becomes relevant from a talent acquisition perspective, as labor management becomes far more complicated with longer time frames.

You may even need to consider issues outside of your expertise, like multi-currency compensation, 401k administration, and other complex topics. HCM suites build on the foundation of their simpler cousins, allowing for more complex automation and software assistance.

It is important to note that taking advantage of such tools may require more specialized employees. This is another reason why these tools tend to be targeted to larger organizations. Enterprises and bigger companies tend to have more specialized and experienced HR professionals, while smaller groups may have one or two generalists. Decent technical capabilities are also recommended to make the most out of your new HCM.

If your labor pool becomes more sophisticated or competitive, employee engagement can become important for talent retention (this can matter for smaller companies too!). Keeping your employees up to date and knowledgeable about their field or industry may necessitate a learning management system for in-house skills development at scale.

Not all of these trends will necessarily occur at once. Purchasing point solutions targeting specific strategic HR functions can be more efficient and less costly to address your immediate needs. Eventually, it will become more beneficial to centralize these processes onto one platform, from both an expenditure and integration standpoint. One of the benefits of an HRIS is centralizing employee data, and this is just as true for an HCM’s ability to centralize data, from employee engagement and performance to succession planning.

The point at which an HCM becomes your best option is a business-by-business call, but it’s frequently a matter of when not if. If you think you’re at that point now, or are approaching that point, there are myriad options available, such as UltiPro, Ceridian Dayforce, and Oracle HCM Cloud. HCM suites can vary in their suitability for midsized and large businesses versus enterprises, so it’s important to find a product that’s suited to your needs in terms of scale and modules offered.

What if I’m in the middle?

After looking at HRIS products and fully-loaded HCM suites, you may find yourself in what feels like a No Man’s Land between the two extremes. You’re not alone! Mid-sized businesses often need more features than small businesses and startups. They also find enterprise-scale HCMs overpowered or overpriced for your scale or complexity. Fortunately, there are some products that currently operate in the grey area.

These offerings have the core HRIS functionality and some additional strategic HR features but lack the comprehensive reach of fully-fledged HCMs. These products, like Paycom and Ascentis, can better serve the needs of businesses who have some strategic needs but lack either the budget or in-house HR team, or both, often needed for enterprise HCMs.

These products also offer additional functionality to those with the technical skill to make use of them. The strategic functionalities allow for a less logistical, more sophisticated approach to HR. Fast-growing companies with tech-savvy departments can use these tools to get a cost-effective leg-up.

You may also find it beneficial to pair an HRIS with a point solution aimed at strategic HR tasks, like employee engagement, scheduling, or even standalone payroll solutions. Point solutions have made a “point” of making integration with HRIS and HCM suites as easy as possible to compete with the more comprehensive options. The market space hasn’t yet fully consolidated into HCMs yet, which gives you some wiggle room to customize your HR software ecosystem. How long this option remains viable is another question entirely.

 Human Resource Information SystemMid-Range ProductHuman Capital Management Suite
OverviewSystem of record for Employee DataHRIS with some strategic functionalitiesFull-Service core and strategic HR platform
Common FeaturesPayroll
Benefits administration
Personnel tracking
Reporting
Payroll
Benefits administration
Personnel tracking
Reporting
Talent Management
Payroll
Benefits administration
Personnel tracking
Reporting
Talent Management
Recruiting/ ATS
Reporting and analytics
When do I need it?You have a small labor pool and don’t have a need to standardize or automate strategic HR functionsYou’re a small-to-midsized business with some strategic HR needsYou’re a large business or enterprise with medium/long-term planning and management needs

A look towards the future

The market has been trending away from core HR-only offerings towards HCMs for years now. Behind this trend is a demand for better data integration and centralization to enable data-driven insights, analytics, and decision-making. This integration also allows for better use of AI and machine learning processes.

Strategic HR functions once considered peripheral or as extra add-ons, like performance management, are increasingly accessible and relevant for all businesses, regardless of size or industry. As the HR management market continues to develop, core HRIS features may be sufficient for you to get by, but HCMs will become increasingly central to staying competitive and making the most out of your HR processes.

Click to explore a whole host of HR management software

TrustRadius Weekly