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How to choose an HR software system in 2021

Experts share their best advice about selecting HR software and pinpointing the features and functions that matter the most.

What is HR software?

HR software is used by organizations to manage a variety of routine HR processes such as recruiting and onboarding, training, payroll, benefits, time and attendance, employee performance and other business needs -- often on a centralized platform -- for greater organization and efficiency.

The options are many and come in a multitude of configurations, making comparison difficult. In this guide, we'll review the most important factors in choosing HR software and the features to look for that will best streamline HR functions and satisfy your company's talent needs.

Types of HR software

Once your stakeholders and software buying team decide to invest in HR software, they must examine the different types of available products. HR software usually comes as a suite of several software modules. Initially aimed at HR professionals to track employee records and manage payroll, today's products include functionality that extends across an organization.

Broad-based platforms go by several names, often used interchangeably:

  • human resources management systems (HRMS)
  • human resources information systems
  • human capital management (HCM) software 

Additional tools focus on more specific areas of the employee lifecycle. Major types of software include:

  • talent acquisition software
  • learning management software
  • performance management software
  • talent management software
  • workforce management software
  • employee engagement software
Stages of the employee lifecycle
Specialized software exists for every major phase of the employee lifecycle, starting with recruitment and onboarding, finishing with offboarding and circling back to recruitment.

Benefits of HR software

At its core, HR software helps organizations offload routine processing and tasks, allowing HR staff to focus on dealing with employees and improving the workplace experience. Functions like time and vacation tracking, payroll, compliance and benefits administration can be integrated with other software and automated as much as possible. Recruiting and hiring can also be streamlined greatly with technology tools. Applicant tracking and onboarding systems help speed the arduous process of screening and interviewing, especially for large organizations.

Today's HR tools go beyond the HR team, however, providing benefits across the organization. Businesses can take advantage of learning management systems for training and development, performance management and recognition to ensure staff has ongoing feedback, and self-service options that enable employees to make changes and access resources at their convenience. HR software plays a large part in any company's strategy for improving employee experience.

Keys for evaluating HR software

"Features and functionality aren't much help because most products are mature and do the same things," said Brian Sommer, president of the TechVentive consultancy. "The issue is which products do a killer job of solving your most complicated, messed-up functions or process pain points."

Rather than looking for products that automate your existing processes, Sommer advised taking the time during the selection process to investigate what's possible with the new and innovative HR technologies on the market, reimagine your HR or talent management processes, then pick a vendor you believe can close the gap between idea and reality.

To do that, companies have to shift from viewing technology through the HR department lens to recognizing that any new system must serve the needs of all employees, according to Katherine Jones, an independent HR technology consultant.

Here are some other tips for evaluating HR software:

  • Create a strategy to evaluate HR tools. Define the organization's biggest challenges and needs when it comes to HR tools. Understand what the company needs and what the goals are in acquiring new technology.
  • List your organization's requirements for HR software. List what is important to the organization in an HR software system. Criteria should relate both to technology requirements and to other issues, such as the ability to cater to compliance requirements internationally.
  • Identify potential vendors. Use a variety of research methods -- from reports to speaking with other customer companies -- to generate a list of possible vendors. Then narrow it down to the top five to 10 vendors to approach for more information.
  • Build a request for proposal (RFP) to submit to the shortlist of vendors. The RFP should be clear and concise and include information on your organization, the project, the timeline, response submission rules, required scope and a vendor questionnaire.
  • Assemble a team to evaluate products. Products should be evaluated by a cross-disciplinary committee of users including representatives from HR, IT and finance, as well as managers and staff members who may interact with the tool regularly.
  • View demos. Demos are usually the best way to see modules and features. In order to get the most value, be sure to ask the vendor to build the demos around actual use cases from your organization.
  • Read case studies. Research customer stories that can provide insight into deployment and adoption challenges. Ask potential vendors for reference customers that can answer questions directly.

Read additional tips to help with HR software selection.

RFI vs. RFP: Do you need both?

Sommer recommended against sending an overly detailed request for information (RFI) before the request for proposal.

"If you do an RFI, it's got to be something that's straightforward and easy for the vendor to complete," he said. Otherwise, they might not want to bother with the deal, he added.

The aim of an RFI is to get a general idea of the breadth and depth of different types of software suites and whether they meet basic criteria, such as operating in the same countries as your organization. And its real value comes from other information submitted by the vendor, such as price lists, standard contracts and the names of implementation partners.

He said the RFP should have a matrix with checkboxes for the vendor to indicate whether a feature is in the current version, on the roadmap for an upcoming version, is available through customization tools included with the platform or is unlikely ever to be in the product.

HR software features to consider

The top HR software vendors will usually claim to handle most of your requirements, making it hard to choose among vendors.

The features outlined below help separate contenders from pretenders, make the most difference in improving human resources processes or provide leading-edge capabilities.

Components and functions of HCM software
Human capital management (HCM) software includes several major components and functions.

Core HR

For many companies, especially SMBs, the initial reason to buy an HRMS is to create a paperless HR system. Electronic employee records remain the foundation of HR technology.

One big differentiator, according to Sommer, is the presence of a payroll module. Many HRMSes don't have one. The next question to ask is about the type of integration with third-party payroll providers. Even an HRMS that handles payroll might need to outsource part of this function to pay overseas employees, for example.

Sommer said to also make sure core HR systems can fully handle contingent workers, such as freelancers and contractors, including providing accurate headcounts without needing separate types of software, and giving them security IDs and other tools full-time employees receive.

Close integration with the ERP finance module is essential, according to Jones. Financial integration allows analysis about questions such as whether to hire two part-timers or one full-timer for a certain job or the most cost-effective way to get work done around the clock with a global workforce.

Benefits administration

Managing standard benefits such as health, dental, life and disability insurance, 401(k) retirement plans, tuition reimbursement and tax-advantaged flexible spending accounts is a long-standing function of core HR.

In recent years, many companies have begun to move these functions off premises to SaaS providers. New health insurance platforms and wellness portals take healthcare beyond these basics to provide online access to fitness communities, medical advice and providers. If you're eyeing a separate health and wellness platform, Sommer advised to make sure it integrates with financials so you can more easily manage the tax and compliance implications of health benefits.

When buying benefits technology, most of your focus will be on partnerships with benefit providers rather than the types of software for administering them, according to Stacey Harris, an HR technology analyst. "I rarely will make a benefit selection decision just based off of user experience, as I might have done with talent management or core HRMS," Harris said.

The issue then becomes whether a particular type of software integrates with your company's HRMS. "There's a real power in the relationship between the [benefits] package I want to create or the [provider] I want to work with and the assets or the software that it's connected with," she said.

Verify that a vendor supports your company's full menu of benefits. Also look for tools for tailoring the system to handle the complex workflows needed to administer your company's specific rules and policies, such as the ability to recover tuition funds or allow employees to share vacation time.

Payroll

Your payroll automation or third-party service should have the following:

  • support for every country where the company does business, regardless of whether it does so through a variety of payroll providers;
  • the ability to create and file the appropriate tax documents and other compliance requirements; and
  • integration with the core financials, typically in ERP, to ensure accounting records reflect the latest payroll.

Employee engagement and recognition

Employee engagement has been a hot growth area for tech startups, and major HR platform vendors have acquired these niche players or built their own tools. The dizzying number of options makes choosing one a special challenge. Sommer said ease of use is the most important criterion because users are often managers with limited tech skills.

Employee surveys are a popular tool for measuring and boosting employee engagement. The most helpful software has a large selection of premade surveys with cross-tabulation capabilities. Ease of use is again key because most users are HR staffers who aren't savvy about technology.

Also, look for the following:

  • easy ways to attach documentation or data that supports badges and other types of recognition;
  • strong integration with your organization's email and collaboration platforms;
  • the ability to export recognition data to the performance management system; and
  • quick return of survey results and synthesizing of data in near real time.

Onboarding

More companies are realizing that the onboarding process -- especially an employee's first-day experience -- can determine how long they stay.

"The big problem here is: Will the software integrate with all the non-HR solutions, and is there workflow and exception handling for all of that?" Sommer said.

To onboard an employee, HR professionals must coordinate a large array of processes, from issuing a security badge and laptop to ordering uniforms and scheduling orientation -- much of it in a certain sequence. Coordinating these steps requires onboarding software that ideally integrates with the IT, time-clock and other systems needed to set up a new employee.

Offboarding is essentially the mirror image of onboarding, with the steps done in reverse order, according to Ben Eubanks, chief research officer at Lighthouse Research & Advisory.

Other important features to investigate include the following:

  • integration with learning systems, so new employees can get quickly trained on required systems and processes and see future training opportunities for new career paths; and
  • surveys and other tools that make it easy for departing employees to give feedback, regardless of whether they have done an exit interview; over time, it builds a database to analyze.

For more details on better employee onboarding, read "7 steps to improve the onboarding process for new hires."

Compliance

HR departments are responsible for keeping an organization in compliance with the many regulations affecting employment, from fair labor practices to anti-discrimination laws and workplace safety. That's why it's important for core HRMS to have a breadth of tools for not only monitoring practices that can have legal implications but preparing all the paperwork required by local, state and national governments.

Check if vendors support the following:

  • every type of documentation, including all forms, tables and exhibits your organization is required to file;
  • AI, analytics and other mechanisms for ensuring that talent management modules don't run afoul of discrimination laws by allowing sexism and other illegal biases; and
  • employee records storage that follows privacy laws, such as the EU's GDPR, especially for SaaS HR vendors who use public cloud services from other providers.

Talent management

Besides core HR, talent management is the largest discipline and most important driver of HR technology purchasing and product development.

Talent management systems cover a vast array of disciplines and processes for bringing people with the right experience and potential into the organization, developing their skills, motivating them, assessing their performance, compensating them, and retaining them or easing their departure.

In recent years, the emphasis on talent management has shifted to skills development and a greater awareness of how skills fit into job descriptions and career paths, according to Harris.

Harris said when buyers examine a product's features, they should pay attention to how well it captures skills and translates them into job roles that are updated regularly. Doing so can help companies with difficult decisions, such as who to furlough during a pandemic.

Eubanks said an emerging way for companies to build skills is the internal use of gig marketplaces, a technology that began as a way for freelancers to find jobs. "You are able to take advantage, in a positive way, and you're able to leverage the skills and the strengths of your workforce," he said.

"You have increased transparency from a career and skills development perspective, so they can see what the opportunities are to grow inside the organization," Eubanks added. Other benefits are improved employee retention and the ability to maintain productivity during hiring freezes.

Read more about the most important features to consider when evaluating talent management systems.

Performance management

Companies have started moving from paper-heavy annual reviews to adopting continuous performance management, which provides tools for coaching and feedback to continuously improve employee performance. But continuous performance management has both pros and cons, and vendor support is uneven, according to Jeremy Ames, vice president of HCM at Workforce Insight.

"The annual performance review bashing started happening four years ago, and you still see plenty of vendors, especially full-suite vendors, who don't do a good job of it," he said.

Sommer said most organizations will do fine with a performance management module that has strong support for the nine-box grid, a standard tool that HR departments employ to rate the performance and potential of employees. It is used in both performance management and succession planning.

But analytics "is where the real action's at," he said. "The analytics are going to tell your where your problems and opportunities are." Workflow and exception-handling features help you do something about them.

Eubanks advised taking a careful look at social media and email integration, which are critical for prompting employees to send kudos and "nudges" to coworkers and making such feedback part of their daily workflow.

Also, look for the following:

  • integration with learning systems, so employees can improve their skills or take mandatory training;
  • retention analytics to help identify leaders and other high performers at risk of leaving; and
  • integration with the compensation management module, plus the ability to analyze how modest across-the-board raises affect the morale of high performers.
Continuous performance management process
Continuous performance management is meant to improve upon, but not necessarily replace, the traditional annual process.

Compensation management

Many companies have a giant spreadsheet that shows employees' salaries and job titles, plus the salary ranges for each job, perhaps adjusted for local markets, according to Sommer.

"The problem is, where do you get the data?" he said. Ideally, the compensation management system comes with a big data service prepopulated with data. If it doesn't, buyers should ask how much it costs to buy it from an outside provider, and how current the information is. Salary databases are often outdated just when you need them: during an employee's performance or compensation review.

Other differentiating features include:

  • support for specialized methods of compensation, especially variable compensation at companies that are heavily sales oriented; and
  • ease of use that makes it feasible to switch from spreadsheets to calculate merit raises and bonuses during regular compensation cycles.

Learning and development

The on-premises learning management system (LMS) is a common legacy platform in organizations that were early to the HR tech market. In recent years, many LMSes have been modernized and moved to the cloud.

But the most important development is the rise of cheap new learning resources, such as short instructional videos on YouTube and the free massive open online courses (MOOCs) from universities and from companies that specialize in distance learning.

Finding useful ready-made content is a challenge, according to Sommer, and companies often turn to third-party providers, but it can be expensive. For those that already have an LMS, the issue is whether it's possible to import content from these new sources. Leading-edge products have Netflix-like AI that can recommend training based on past selections and career paths.

Eubanks said learning experience platform (LXP) is the new term for LMSes that incorporate external content. Some organizations add an LXP as their primary means of interacting with employees but keep their LMS for record-keeping.

"That creates better experiences for your learners without having to unplug the LMS," he said. Purchasers who want to pursue this model should make sure the LXP integrates well with their LMS.

Learn about the difference between an LMS and an LXP and how to choose between them.

It's also important to have good integration between the career planning and learning features of the talent management suite: "When [employees] can actually look at a path and figure out what their gaps are, it makes it more actionable, and it helps them feel like they're making progress toward a goal," Eubanks said.

Also, look for these options:

  • a large variety of learning formats, including classroom, remote, paper-based, video, and audio, both live and on-demand;
  • tools that make it easy for employees to create learning content, such as recording videos on smartphones and providing searchable transcripts;
  • a rich library of courses and materials on a wide range of relevant topics, including the software employees use the most, and courses that meet certification requirements of your industry; and
  • support for xAPI, an integration standard that helps apply analytics to learning, which allows you to monitor employee use and improve offerings.

Recruiting

The war for talent makes finding strategic ways to recruit difficult, even in recessions, but especially during booms when labor supplies are tight.

Talent management suites have more tools for recruiting than any other process, and talent acquisition has become the trendy buzzword, with the market for recruiting software in constant flux and startups entering every year.

A company's tolerance for such innovation often determines what features it cares about, according to Ames.

Some organizations weight recruiting low among their requirements and only need basic functions, such as an applicant tracking system (ATS), online job postings and a process for moving from intake to job offer. Others know they want innovative features.

In that case, the selection process should emphasize more advanced features, including candidate relationship management, the ability to pull in resumes from a variety of different sources, LinkedIn connectivity and generally better visibility into candidates as they move through the hiring pipeline.

Look for the following:

  • SMS texting, which helps reach candidates who lack easy access to laptops or PCs and prefer texts over voice calls;
  • auditing that records every contact with a candidate on every communication platform you use; and
  • natural language processing for analyzing unstructured data, such as text messages.
How recruitment works
The recruitment process has become easier and more effective, albeit more complex, because of the influx of new technologies, especially AI and social media.

Job postings and job boards

Gone are the days of posting every listing to as many job boards as possible. Nowadays, postings usually cost money, according to Sommer, shifting the priority to managing job postings so they will be as effective as possible. Recruiting modules now have more tools that help you create job descriptions and write job posts.

Important features include:

  • integration with popular job boards and others you want to use; and
  • support for other digital channels, such as social media and text, for more precise targeting of promising candidates.

Video interviewing

Basic interviewing simply involves using webcams to replace an in-person meeting. Video interviewing software lets an employer send the same set of questions to thousands of candidates to produce interviews in a consistent format, according to Sommer. The technology is often used to winnow down the list for in-person second interviews, but it can introduce the potential for increased discrimination.

Jones advised giving careful scrutiny to services that record and manage the videos for you, which can be expensive. It's also important to ask who technically owns the videos, how long they're stored and accessible on demand, whether they can be downloaded and if they are ever shared with outsiders. Videos recorded in an ATS might require buying more storage capacity.

Key features to look for include the following:

  • AI that can analyze voice modulation and visual cues for signs a candidate is nervous, evasive or lying;
  • analyzing candidate vocabularies to measure intelligence;
  • easy ways to move around and make notes in videos and jump quickly among videos; and
  • automated transcriptions you can easily search for keywords that suggest skills your company needs.

Learn more about how vendors are integrating AI into recruitment tools in "6 ways AI can improve the talent acquisition process."

Workforce management

Workforce management systems enable organizations to monitor and improve employee productivity. In addition to tracking time spent working and on specific projects, workforce management can also identify opportunities to better schedule and deploy employees and skill sets.

Time and attendance

The old punch-in time clock is mostly a relic of the past, but hardware choices are still key to administering time and attendance, according to Sommer.

"We get into some really interesting problems," he said, such as when retailers require workers to walk to their point of sale system to log every arrival and departure -- including breaks.

Key features to watch for:

  • support for multiple platforms, including smartphones and wall-mounted shop-floor tablets;
  • integration with email and scheduling software; and
  • integration with operational information and weather forecasts, which enables more responsive scheduling.

Workforce planning

Though it has obvious affinities with talent management, enterprise workforce management is a separate discipline, often with separate software devoted to it.

The process is heavy on analytics, as executives and HR managers parse external demographic and labor data alongside internal data to spot pending shortages or decide where to reassign employees to better address strategic priorities.

At the same time, workforce management can be extremely detailed and help decide whether to call in two more retail clerks for a weekend sale.

Scheduling software is the primary tool of this more granular form of workforce management. It's especially valuable if it lets employees schedule themselves while ensuring that shifts will be covered, according to Sommer.

"This is critical in nursing. Nurses want more than any profession I've ever run into to set their own schedules, and it's the key to retaining them," he said.

Also, look for the following:

  • daily tracking of individual employees' security credentials, including whether they have been revoked;
  • awareness of certification requirements of jobs, ability to assess the validity of certifications and their expiration dates and links to an LMS or LXP for related training; and
  • notification when employees are nearing weekly hours that will require paying them benefits or overtime.

Succession planning

Some talent management suites have a succession planning module that helps in planning what should happen when executives and other high-value employees leave. It can also help retain good employees by spotting signs of dissatisfaction and providing career paths, according to Sommer.

Ease of use is critical here, especially if people outside of HR, such as senior managers, need to use the tools.

Also, look for these options:

  • what-if capabilities for considering different reporting structures and reorganizations, or the effect of corporate mergers on succession;
  • an org chart tool, ideally one that goes beyond static PDFs and makes it easy to move large chunks around;
  • close integration with learning management tools to facilitate career development for employees earmarked for eventual promotion; and
  • the ability to plan succession for non-executive-level employees.

Service delivery

The days when employees simply walked down the hall to ask a question or pick up a form at their HR department are a relic of the past. As companies digitize and workers become more distributed, service delivery has become an important aspect of ensuring employees receive the HR services they need.

Service delivery is a growth area in human resources tech, according to Harris, with vendors adding help desks, chatbots and feedback tools.

The platforms can be challenging to set up in-house, integrate with HR systems and populate with enough data and documentation, which often makes them a better fit for large companies than for SMBs. Training chatbots for the particular needs and culture of an organization is another challenge.

Employee self-service (ESS)

Enabling employees to change their personal information, benefit elections and beneficiaries can save time and money for HR professionals.

Vendors have worked to make these ESS features available on employees' personal devices, but there are limits. "Trying to switch shifts with somebody may be impossible to do on a smartphone because there's just not enough screen real estate to get the whole picture," Sommer said.

Look for these features:

  • smartphone access to most self-service functions; and
  • support for other devices, including shop-floor tablets, break-room computers and point-of-sale systems, if the workforce is mostly employees who lack smartphones and home computers and need other ways to access ESS.

Manager self-service (MSS)

Managers need self-service features that go beyond ESS by providing access to the HR and business functions, applications and data they need to perform their supervisory roles.

Here's what to look for in MSS features:

  • remote access to the full range of applications, with the same level of security and privacy as in-house systems; and
  • department-wide visibility into work schedules, to help with vacation approvals and other changes.

HR technology continues to advance at a rapid pace, shifting from tools built for HR professionals to systems designed to improve employee experience. In addition, the COVID-19 pandemic has forced HR departments to adapt and formulate creative solutions relying largely on technology. Look for HR software to incorporate additional elements making it more easily accessible for all users but at the same time including sophisticated functionality.

Get started in your vendor research by reviewing our list of the top HR software vendors to watch. Then dive into the HR software selection process with "A complete guide to buying human capital management software."

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