Human resource leaders in small organizations historically have only watched as their peers in larger companies invested in the latest-and-greatest HR technologies. Limited budgets often meant technologies like human resource management systems (HRMS), applicant tracking systems (ATSs) or point solutions like performance management platforms were beyond the reach of small HR departments. They had to settle for spreadsheets or other low-cost options to store or analyze employee data.
That reality has changed as more industry vendors begin to target small businesses with affordable, cloud-based solutions. According to the 2019-2020 Sierra-Cedar HR Systems Survey, small organizations are the fastest growing segment of new HR technology buyers. A 2019 study from Boston-based Aptitude Research found that nearly 60 percent of small and medium-size businesses now have an ATS, for example, a 10 percent increase from the previous year.
Payroll vendors are another example. The Sierra-Cedar study found that although the payroll market has been stable for larger organizations, it has seen a "huge influx" of new cloud-based solutions designed to serve smaller businesses.
Experts say that although smaller HR functions have small budgets, they face many of the same automation demands as they grow that larger functions do.
"A big misconception is that decisions about automation should be different for a 50-person company versus one with 5,000 employees," said Jeremy Ames, founder and CEO of Hive Tech HR, an HR technology consulting firm in Bellingham, Mass. "The only questions that should be asked are 'Does it take me longer to do it without automation?,' 'Would my employees benefit?,' and 'Would I gain additional insights by automating?' "
Ames uses onboarding as an example. Creating a repeatable, automated process for new hires benefits all parties, he said. "Small companies also end up with an electronic repository of the documentation filled out during onboarding that is the perfect start to a comprehensive electronic personnel file," he said.
The fact that many larger vendors can "scale down" their enterprise-level software gives small HR functions an increasing amount of options, Ames said. Most vendors use a "per employee per month" revenue model for small businesses, since these transactions still have to make financial sense for them. These vendors typically charge extra for add-on modules that aren't part of a core technology platform like an ATS or HRMS.
"I think it's an indication of the extremely competitive marketplace where the number of vendor options continues to grow," Ames said.
More vendors are offering full-suite systems and trying to be a "one-stop- shop" for all of a small company's HR software needs. The 2019 Aptitude Research study found 57 percent of small and medium-sized businesses had invested in an enterprise resource planning provider or talent management suite vendor for their ATS, while only 14 percent use a standalone "best-of-breed" ATS provider.
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First Steps to Automation
Small or one-person HR functions looking to make their first moves into automation should focus first on areas where they have the support of company owners, CEOs or CFOs, said George LaRocque, founder and principal analyst of HRWins, an HR technology research and advisory firm in New York City.
"HR first and foremost needs to meet its core contract with employees," LaRocque said. "For many small functions, that means looking first at payroll, benefits, and time and attendance technologies. I've surveyed thousands of small businesses and executives usually see the biggest ROI in those technologies because they want to see costs associated with those areas contained, measured and managed."
Once you've proven you can deliver a good return on investment in those bread-and-butter areas, you can consider adding more specialized talent management technologies, LaRocque advised.
"If new technology platforms aren't working well with payroll or benefits, then asking people to sign up for some whiz-bang new performance management application will become a reach," he said. "You're asking people to perform their work differently with automated platforms and you need to pick the spots where you can have maximum impact."
Eyeing an HRMS
The Sierra-Cedar survey found smaller organizations increasingly are finding it necessary to implement an HRMS. HR leaders in these businesses are looking to move beyond spreadsheets to automate core employee record-keeping as well as enable more efficient and sophisticated reporting of metrics like headcount, turnover or payroll costs.
Ames sees anecdotal evidence that more small companies are implementing these systems. "Five years ago, at the SHRM annual conference, people would stop by our booth and small company after small company would claim that they hadn't put in place an HRMS," he said. "Now most of our discussions with similar firms are about either selecting or at least being closer to selecting such systems to fit their situation."
Caleb Fullhart, CEO of the Peridus Group, an HR technology consulting firm in Minneapolis, said small HR functions should seek out "quick wins" when looking to automate processes. "Electronic signatures is one of those wins," he said. "Vendor prices are often based on company size and HR can use e-signatures for job offer letters, when employees have to sign off on pay changes and more."
Storing I-9 forms electronically also becomes an advantage during an audit, Fullhart said. "It's a lot easier to find an electronic document than a piece of paper stored in the back of a filing cabinet somewhere."
Investing in an ATS can have a big payback for small businesses shifting to growth mode, Fullhart said. "A lot of small companies are still using Google spreadsheets as their ATS," he said. "But there are more quality ATS's available to small and midsize firms at affordable rates today because vendors have realized how big that market is."
Free solutions offered by vendors can prove enticing to HR shops operating on shoestring budgets. Experts say these "freemiums"—where vendors may offer one software license for free and then request you move to paid versions when adding additional licenses or more functionality—can be a good option in certain scenarios but usually have a limited shelf life.
"If you're choosing a solution just because it's free, you may be setting yourself up for a more painful change later when you need more functionality and complexity in a system," LaRocque said.
Small Businesses Lack Change Management
Where small HR teams often have breakdowns when implementing new automated platforms is in change management, Fullhart said. "Getting the company comfortable with the change and the new technology can be a challenge. People need assurances that technology isn't going to take over their jobs, it will simply change how they perform their work."
The Sierra-Cedar survey found that organizations practicing the highest level of change management with HR system implementations achieve 28 percent higher business outcomes than those who don't use such practices. But small businesses lag in this area, the survey found. Only 24 percent of survey respondents from small organizations reported having a consistent culture of change management.
Tech Aids Compliance
Meryl Gutterman, counsel for small business services with Roseland, N.J.-based vendor ADP, said small HR functions should think about their technology needs in terms of what federal, state and local laws apply to their businesses now and as they grow.
Timekeeping technology, for example, may help them comply with the new overtime rule that is part of the Fair Labor Standards Act (FLSA), Gutterman said. "If employers have made the decision to reclassify employees as nonexempt, they'll need to have a way to accurately track and report hours worked and pay overtime in accordance with the FLSA."
An ATS can help small businesses stay on top of employment law trends, she said. "A big recent trend is pay equity and state and local bans on asking applicants about their salary history. An ATS and other tech solutions can help small HR functions keep up with ever-changing laws."
Dave Zielinski is a freelance business writer and editor in Minneapolis.