It’s not an understatement to say that purchasing a new workforce management and payroll software system is one of the most important decisions a business can make. People’s livelihoods are dependent on receiving accurate pay, legislative compliance is at stake and it involves a large investment of money and time. The first decision to be made is whether to purchase a cloud-based SaaS or on-premise system. This post will look at the cost consideration of this decision.

Cloud-based software is fast overtaking on-premise as the preferred vehicle for many businesses in the UK. Research published by Eurostat reveals the UK is the sixth largest cloud user among other countries in the EU. According to a Cloud Computing report, 88% of UK businesses were using cloud services in 2018 (an increase from 85% in 2017).  A significant 45% of UK businesses using cloud computer services for accounting and financial (apps).

The argument for cloud-based software is overwhelming with greater access to data, flexibility for your workforce, speed and instant updates.  A Microsoft report revealed that:

• 94% of SMBs reported security benefits when using the cloud.
• 59% of SMBs reported significant productivity benefits.
• 82% of SMBs reported reduced costs, with 70% reinvesting their savings back into their business.

But the biggest argument is undeniably cost.  Cloud adoption statistics reported in Hosting Tribunal’s blog reveal that 50% of enterprises spend more than $1.2 million on cloud services each year. A survey of 166 IT leaders, reported in Datometry, showed that main driver for moving their computing to the cloud was cost, with 61% stating that it was part of their companies’ cost-cutting initiative.

Let’s look at why this is the case.

The cost of workforce management & software subscriptions

To understand what we are comparing, let’s look at the options:

• Using cloud-based workforce management and payroll software means that you pay a subscription fee. The software and data are hosted on the cloud and the cost of the hosting is included in your subscription.
• On-premise software. This means that you pay a licence fee for the software either up-front or annually. The software is installed on servers owned by your company and located on your premises. The cost of hosting and data storage is born by the licensee.

Cloud-based software is sold as Software as a Service (SaaS) and is considered an operational expense in your budget. On-premise software, however, is purchased outright, as is the server you must host it on, and the office space where it’s located. All are considered assets and are therefore capital expenses.

For large enterprises who already have servers or their own private cloud, and an IT support team, and require customization, an on-premise system may be a more cost-effective option. But often the licence fees are significantly higher than that for cloud software, and the capital must be available to make the purchase in the first place.

For small and medium businesses, a cloud-based workforce management and payroll system is by far a more cost-effective and inexpensive option. With payroll only systems starting at around £3 per person (over 10 employees) and workforce management systems starting around £6, it makes financial sense.

The financial risks associated with cloud-based payroll and workforce management software are also far lower – generally, with SaaS subscriptions, you aren’t locked in long term. If your business changes and you need a different option, cancellation is far easier. Once you’ve purchased an on-premise system, you are up for high costs in replacing that system if it doesn’t work for your business.

The math is very interesting. We haven’t gone into them here, but if you’d like to look at the comparison of the ‘hard dollar costs’ in-depth on a general cloud versus on-premise system, this article on LinkedIn is certainly worth a read.

The cost of security

Cloud storage and SaaS is now quite mature, but organisations and their IT departments continue to weigh up the risks and benefits.

For small and medium-sized businesses, the public cloud can offer better security and privacy than they would be able to afford if they chose on-premise. Cloud software providers hold the data on remote servers owned by Amazon Web Servers, Microsoft Azure or Google Cloud, backed up multiple times. Their business is dependent on security so customers can be assured they are doing everything in their power (and spending big) to protect the data under their care.

Large enterprises with their own on-premise servers or even a private cloud pay a premium for security measures and need to pay for staff dedicated to monitoring security activity. An expense that few businesses in these economically uncertain times can afford.

The cost of updates and scaling up

When using cloud software, updates are generally carried out regularly and without additional cost to the customer. Updates can be rolled-out quickly with no ‘downtime’ required by the customer, meaning business – and revenue-generating activities – can continue uninterrupted.

On-premise systems typically require down-time – and potential loss of revenue – for updates and maintenance, not to mention the staff required to carry out the work. It’s an expensive exercise, particularly if the system has been customized.

While cloud-based systems ensure customers are always on the latest version, a new version of an on-premise system requires a financial outlay for a new licence(s), the cost implementing the new version, the time to check data and training costs if the new version is vastly different to what was in place before.

This is a particularly important financial consideration for payroll software where upgrades happen regularly as legislation regarding pay scales and entitlements changes.

Cloud-based systems are also far easier to scale up or down as employee numbers change. It’s often just the matter of clicking a button and adding a new ‘seat’. For an on-premise system, this means paying for an extra licence and installing the software on additional machines.

The cost of implementation

Cloud software is often so simple to implement that many providers allow customers to set themselves up. It takes very little time and often, IT doesn’t even have to be involved. It’s inexpensive from a time and resources perspective and ensures business as usual continues.

On-premise systems typically require much longer implementation time, and businesses of any size need to consider whether they can afford to spare staff for a lengthy process.

As cloud software and the security it offers becomes more sophisticated, it will be hard for any business regardless of size to ignore the cost savings that a cloud-based system offers.

If you are searching for a new workforce management and payroll system, we recommend downloading our comprehensive purchasing guide.

Words by Katrina Strathearn