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Payroll vs. HCM Software - Pros and Cons

Contributor: David Ma, Implementation Specialist

January 27th, 2023 | 4 min. read

By Tony Calavitta

Payroll vs. HCM Software - Pros and Cons

Are you having trouble figuring out which business management software is right for you?

With many options to choose from, finding the optimal software for your business is a big decision. And one that, as an employer, you don't take lightly.

No one can relate to that more than the payroll and HCM specialists at Combined. We understand basic payroll and advanced HCM software and have helped countless employers choose and effectively use the one that is best for their business.

And we are dedicated to helping you do the same.

This article will focus on comparing payroll and HCM software and exploring the pros and cons of either system.

By reading it, you will know the differences between each, and which of the two best fits the needs and goals of your business. 

What's the biggest difference between payroll and HCM software?

Both payroll and HCM software reduce the time you spend conducting payroll. They both also minimize your risk of error in this process.

The biggest difference is that payroll software only performs payroll while HCM software has greater function and, largely, focuses on employee management.

Let’s dive deeper into the pros and cons of each one.

What does payroll software do?

Payroll software computerizes the process of performing payroll.

Payroll is the process through which employees are paid so it is an important business operation. Think about it (and don’t overthink it) - why do employees work?

Employees work to get paid.

Payroll software is the intermediate between employer, employees, and paychecks. It makes sure that employees receive their paychecks with the right amount at the right time.

What is included in payroll software?

Payroll software simplifies accurate and timely processing by combining these functions:

  • Timekeeping
  • Tax withholding calculation
  • Data entry

Combining these separate functions makes the payroll process simple and virtually error-free.

Pros of payroll software

Accuracy

From an employer perspective, payroll without mistakes means no risk of compliance penalties.

From an employee perspective, perfect payroll means perfect paychecks. It also gives employees confidence in their employer and creates morale in the workplace. 

From both perspectives, payroll software is a win-win.

Accessibility

Payroll software organizes and stores employment documentation.

From an employer perspective, all employee deduction information, tax forms, pay stubs, etc. are collected in one place.

From an employee perspective, deduction information, tax forms, pay stubs, etc. are available and easily self-accessible. 

Again, it’s a win-win.

Cons of payroll software

Limited capability

Payroll software is strictly limited to performing payroll.

While it performs payroll functions well, it cannot integrate with any other employment objectives.   

Should you want to merge payroll with HR operations, you would need more advanced administrative software.

What does HCM software do?

HCM software is an all-in-one software solution.

Do you remember the ballpoint pens that can switch between multiple ink colors? Instead of carrying a cluttered pen case with a black pen and a blue pen and a red pen and a green pen, you needed only one pen to write in all these colors.

HCM software is the multicolored pen of employment operating systems.

It is a multidimensional software that can combine and manage all aspects of employment:

  • Recruitment
  • Onboarding
  • Payroll and benefits administration
  • Progressive performance evaluation
  • Employee engagement
  • Offboarding

What is included in HCM software?

Recruitment

You are looking for a new employee.

HCM software can help you easily find and place the right candidate in the right position.

Its recruitment features like easy-apply with filters that determine which candidates are qualified and which are not, making sure neither you nor your prospect waste time.

It also stores personal recruitment information. Once you’ve made your selection this allows a seamless transition to hiring.

Onboarding

You’ve found the right candidate for the job.

HCM software stores information collected during recruitment to make onboarding a new employee a quick and easy process.

This information will also be organized in one centralized location.

Payroll and benefits administration

You now have a new employee.

HCM software’s payroll function will ensure accurate and timely payment and access to updated employment documentation.

HCM software will also provide benefits plan information and enrollment options.

Progressive performance evaluation

How well is your employee doing their job?

HCM software monitors employee achievement. This ongoing measurement system provides valuable insight into your employee’s performance and creates an evaluation platform for promoting internally.

Employee engagement

Your employee needs to know when they are doing a good job and when their work could use some improvement.

HCM software includes engagement metrics that celebrate work well done and highlight areas that could use attention. These types of analytics give your employee an incentive to do the best work possible.

Offboarding

Your employee is not right for the job.

HCM software includes compliant protocol for terminating and offboarding an unfit employee.

Pros of HCM software

Centralization

By consolidating these different employment functions, HCM software can:

  • Facilitate increased employee retention
  • Create incentivized employee performance 
  • Reduce administrative workload

HCM software merges separate employment functions, allowing business improvement and growth.

Personalized Functionality

HCM software is customizable. It can be scaled up or down to meet the needs of your business.

Think of the multicolored pen again. If your work requires only black ink, the pen can perform. When it comes time for you to revise your work and you need red ink, the same pen can also perform. As your work begins to require more and more colors, you still don’t need to switch pens.

HCM software works the same way.

If your business is at the ground level but anticipates growth, HCM software can act strictly as your payroll software.

But when your business grows, you can expand the reach and function of HCM software without switching between or integrating new operating systems.

Cons of HCM software

Ease-of-use

The capability of HCM software has no limit.

But, without the knowledge and training to properly use HCM resources, it is difficult to apply them.

When considering implementing HCM software, it is important that you find a provider dedicated to training you on how to use it effectively.

Is payroll of HCM software better for your business?

Every business is different, but we generally see this pattern:

If you are a small business and keeping expenses low is a top priority, then payroll software is a better option.

But, because consolidating HR and payroll functions can enhance efficiency and help your company scale more quickly, if you are looking to expand your business, then HCM software is a better option.

Next steps to choosing the right software for your business?

No two businesses are the same – your business management software shouldn’t have to be either.

After reading this article, you now know the pros and cons of payroll and HCM software and how to choose which is right for your personal goals and the direction of your business.

Our team of experts at Combined has helped businesses at every stage of growth find and implement their perfect software system. And we want to help you do the same.

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Interested in learning more about software tailored to your business?

Schedule an appointment with one of our experts!

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If you are not yet ready to speak with a team member, you may find these resources helpful:

This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.