Experts Share Criteria for Choosing a Small-Business HRIS

Investing in a human resource information system (HRIS) is a milestone moment for a small business, suggesting a level of growth and success that requires a more formal and efficient way of managing HR processes.

Small HR departments that have decided it’s time to move beyond spreadsheets and paper documents to purchase a modern HRIS have a growing number of options—and more are making that transition to an HRIS. A 2024 report from Business.com found that more than 3 million small businesses (those with 250 or fewer employees) now rely on cloud-based HR software to manage and administer HR functions.

Key Selection Criteria: How to Choose an HRIS

The many HRIS platform options can pose a greater challenge in finding the right fit for a company’s unique needs. SHRM Online spoke with technology analysts to identify selection criteria HR buyers should use when evaluating HRIS providers that cater to the small-business market.

System Price

Cost is a primary concern for small businesses with limited technology budgets, making it paramount to find the right balance of HRIS price and “must-have” system features.

Most vendors offer subscription-based, software-as-a-service (SaaS) plans with tiered models that grow in cost based on number of users, system features, and integration options. At a minimum, most small HR functions want centralized document storage, payroll processing, time tracking, and analytics features—tools that also help with legal compliance. Others increasingly seek features that automate onboarding and recordkeeping—such as tracking paid time off and adding e-signature capabilities—while enabling employee self-service.

The average HR software solution now costs $5 to $20 per employee per month, in addition to monthly base fees ranging from $40 to $100 as well as a one-time system implementation fee, the Business.com study found.

Employee Self-Service Tools

Time management is one of the biggest challenges for any small HR department, and experts say that’s why small businesses should prioritize finding an HRIS with modern, mobile-based employee self-service features.

“The more HR-related tasks that employees can do themselves—from updating contact information to downloading pay stubs to logging PTO—the more time it frees up for a small HR function or a department of one to focus on other priorities,” said Brian Westfall, principal HR analyst at software marketplace Capterra.

Analytics and Reporting Features

The quality of analytics and reporting tools in an HRIS is another key differentiator.

“Businesses need the ability to visualize and analyze their data in order to identify bottlenecks and improve their HR processes,” Westfall said. “This is even more important for small businesses that lack dedicated data and analytics staff. If your HRIS has poor analytics capabilities, it’s like trying to finish a puzzle in the dark.”

Ben Eubanks, chief research officer at Lighthouse Research and Advisory, an HR consulting firm in Huntsville, Ala., said small businesses increasingly need an HRIS with reporting tools that offer real insight into key people metrics.

“I spoke at a payroll industry event in July, and during the audience Q&A, more than 50% of the questions tied back to reporting, insights, and analytics,” Eubanks said.

Integration and Configuration Capabilities

It can be easy for HR buyers who are laser-focused on finding an HRIS to fix a specific problem to overlook how well the platform integrates with other internal systems, said Stacey Cadigan, a partner with advisory firm ISG who specializes in HR technology.

“The ability to seamlessly connect HR processes and the flow of data even in smaller organizations is important in these buying decisions,” Cadigan said. “Ultimately, those integrations help executives and managers make better and faster decisions.”

Rebecca Wettemann, CEO and principal analyst at Valoir, an HR technology analyst firm headquartered in Arlington, Va., agreed that small businesses should closely evaluate the integration and configuration capabilities of prospective HRIS providers.

“Whether it’s integrating with other HR applications or outside applications such as a customer relationship management system, open APIs—or even better, pre-built connectors to other systems—will reduce both initial and ongoing cost and support demands of the HRIS,” Wettemann said.

Artificial Intelligence Tools

AI has made deep inroads into HR technologies, and the HRIS is no exception. For example, Wettemann said generative AI (GenAI) capabilities that feature assisted authoring—such as writing job descriptions and drafting performance views—as well as ones that can summarize HR documents are rapidly becoming “table stakes” in many HRIS platforms.

Yet compared to other technologies such as recruiting platforms, AI adoption has been slower in HRIS and payroll systems, some experts say.

“There’s a lot of talk about AI use in payroll, for example, but when you dig deeper, there’s not a lot there,” Eubanks said. “Most of what I’ve seen has been in global payroll with complicated compliance rules that AI can help to straighten out. Within the U.S., I’m not yet seeing a lot of public, AI-driven capabilities in HRIS or payroll.”

Eubanks said that’s in part because HRIS use cases may not be as “exciting” as recruiting applications, so it’s been less of an AI investment priority.

“There are things happening in broader workforce management and time and attendance, but the HRIS is essentially a storage ground for people data, and there isn’t yet a big need for AI there,” he explained.

Westfall said HRIS platforms designed for smaller businesses may eventually come packaged with next-generation HR service chatbots, which he calls the “holy grail” of AI use in HR.

“Similar to the benefits of employee self-service, if a chatbot hits the market that is fully capable of handling a myriad of employee questions and requests without human intervention, that will be a game changer for HR departments,” Westfall said. “We’re getting closer, but there is still some work to be done.”

Wettemann agreed that while the functionality of HR service chatbots is improving, many HR professionals remain wary of their use.

“While vendors are investing in autonomous HR ‘agents’ to answer employee queries, I expect it will be a while before firms are comfortable using them because of the potential risk of delivering incorrect information to employees,” she said.

Scalability: Can the System Grow with You?

A small HR department should look for an HRIS that can scale and innovate to keep pace with the company’s own growth.

“Businesses going through high-growth life cycles want to invest in a technology that’s not only with them today but three to five years down the road,” Cadigan said. “They don’t want to have to go back out into the market to find a new solution that scales better.”

Making the Most of Product Demos

Once finalist HRIS providers are chosen and the selection process moves to the product demonstration stage, experts said it’s important for HR buyers to assert themselves and not settle for vendor-driven demos.

“The best way you can extract relevant, helpful information from a demo is by laying out your most common use cases and putting the system through those paces,” Eubanks said. “Don’t agree to go through a ‘stock’ or scripted demo from a provider. Make it fit your unique processes so you can accurately tell if it’s going to meet your needs as an employer.”

Westfall said it’s also important to have a mix of IT and non-IT employees participate in product demos.

“That way you can cover all of your bases from a front-end and back-end standpoint,” he said.

HR buyers also should know what information is best to get from the vendor and what is best gathered from other sources, Westfall said.

“Vendors are great at detailing what their product can do and the level of support they can provide,” he said. “But if you want to know how user-friendly a system is, how reliable it is or how it performs for a specific industry or use case, I’d look to user reviews instead.”

Dave Zielinski is principal of Skiwood Communications, a business writing and editing company in Minneapolis.