What Are the 3 Main Types of HR Systems?

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We know that HR practices today can be streamlined and supported using various types of HR systems. These technologies can help you manage your workforce more efficiently and with fewer mistakes.

However, the wrong HR system could be misaligned with your company’s needs, have integration challenges, and be a waste of time and money. That’s why it’s critical to fully understand the different types of HR software before implementing or upgrading your system.

In this guide, we’ll explore the three main types of HR systems—Human Resource Information Systems (HRIS), Human Resource Management Systems (HRMS), and Human Capital Management (HCM) systems. We’ll also explain the differences between these systems and how to choose the right one for your business.

Key Takeaways

  • The three main types of HR systems—HRIS, HRMS, and HCM—help with supporting various HR processes but serve different purposes.
  • An HRIS streamlines core administrative HR tasks, an HRMS offers tools for management functions, such as recruitment and performance, and HCM systems provide the broadest range of features, including those for strategic HR.
  • Consider your organization’s size, complexity of HR requirements, budgets, resources, and compliance needs before choosing the system that works best for you.

HRIS vs HRMS vs HCM: An In-Depth Comparison

Below, we take a closer look at these HR systems and how they differ from each other.

What Is A Human Resource Information System (HRIS)?

HRIS software manages and automates administrative HR tasks. Its main functions include the following:

  • Employee data management: Providing a central database for HR-related information, such as an employee’s personal information, employment details, pay, promotion, performance history, absence records, compliance paperwork, and employee relations files.
  • Payroll and compensation management: Recording salary structures, bonuses, and other compensation-related data, plus managing payroll reporting, including tax deductions.
  • Time and attendance tracking: Tracking employee attendance, work hours, breaks, and overtime, and managing time off requests for personal time off (PTO), vacation days, sick leave, and other absences.
  • Benefits administration: Managing employee enrollment in health insurance, retirement plans, and other benefits, plus tracking usage, contributions, and changes in plans.
  • Reporting and self-service: Offering basic reporting and self-service tools that enable employees to update and access their own documents.

Pros and Cons of an HRIS

Here are some benefits and limitations of using an HRIS.

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Pros
  • Streamlines payroll, time tracking, recordkeeping, and other tasks—saving time and resources by reducing manual errors
  • Employees can manage and access their own records, creating a seamless employee experience
Cons
  • Lacks advanced features for strategic HR functions
  • Limited compatibility to integrate with other business systems

What Is A Human Resource Management System (HRMS)?

An HRMS is a more comprehensive HR software solution, offering a broader range of functionalities beyond core HR administration. These include:

  • Recruitment: Posting open positions, tracking applications, managing candidate communications, and collaborating with the hiring team.
  • Onboarding: Streamlining the new employee onboarding process, including paperwork, orientation, training, and task assignments.
  • Performance management: Goal-setting, conducting and tracking performance reviews, and providing feedback.
  • Advanced reporting and analytics: Using data analysis to gain insights into workforce trends and other metrics.
  • Offboarding: Automating the offboarding process, including documentation, collecting feedback from leavers, revoking access, and updating systems.

Pros and Cons of an HRMS

Here are some benefits and limitations of using an HRMS.

Pros
  • Offers features for goal-setting, performance management, and new hire onboarding and training—helping to fuel productivity
  • Better reporting and data analysis tools help with improved decision-making
Cons
  • Can be complex to implement
  • More complicated to learn and use, leading to user adoption challenges

What Is A Human Capital Management (HCM) System?

An HCM system takes a strategic approach to managing a company’s human capital.

It encompasses all aspects of HRIS and HRMS software but also offers additional features for strategic planning and optimization of the workforce. These are listed below:

  • Recruitment strategy: Implementing strategies to identify skills gaps, attract top talent, and build a talent pool for the future.
  • Performance management: Providing tools to encourage ongoing feedback and creating and managing comprehensive performance improvement plans for employees.
  • Learning and development: Assessing training and development needs and creating and delivering learning programs through tools such as Learning Management Systems (LMS), knowledge bases, video conferencing, and more.
  • Talent reviews and succession planning: Aligning the company’s organizational structure with overall business objectives, identifying and addressing talent gaps, and developing succession plans for key roles.
  • Total compensation management: Developing and implementing a holistic compensation strategy that looks at salary, bonuses, benefits, stock options, and other forms of incentive compensation.
  • Workforce analytics and insights: Using data-driven insights for workforce planning and forecasting, plus analyzing employee performance, engagement, and retention metrics.
  • Employee engagement and well-being: Creating and publishing employee engagement surveys, managing company events, implementing wellness initiatives, and providing employees with tools to support them through change.
  • Proactive risk management: Ensuring adherence to labor laws and regulations, plus identifying and mitigating HR-related risks within the company.

Pros and Cons of an HCM system

Here are some benefits and limitations of using HCM software.

Pros
  • HR professionals can manage all their tasks from a single, integrated platform
  • Offers surveys, training, and other tools to improve employee engagement and retention
Cons
  • More expensive than other solutions (such as HRIS or HRMS software)
  • Requires substantial resources for initial setup, ongoing maintenance, training, and continual optimization

Comparing HRIS, HRMS, and HCM

Here’s a side-by-side comparison of the three systems to fully understand how they differ.

HRIS HRMS HCM
Scope Administrative HR tasks More comprehensive than HRIS, encompassing both administrative functions and HR management features Supports the entire suite of HR functions (administrative, management, and strategic) from a single, integrated platform
Main purpose Streamlining day-to-day functions, saving time and effort, and reducing mistakes Automating core HR tasks and providing tools to improve productivity, employee engagement, and decision-making Aligning HR functions and strategic initiatives closely with overall business objectives
Key features Payroll, time and attendance tracking, employee data management, benefits administration, employee self-service, and basic reporting Everything offered in HRIS, plus tools for recruitment, performance management, onboarding and offboarding, and advanced reporting and analytics Everything offered in HRIS and HRMS, plus tools for recruitment strategy, performance management, learning and development, talent and succession planning, total compensation strategy, employee engagement and well-being, HR risk mitigation, and advanced workforce analytics
Data security Password protection and basic levels of user access controls and data encryption Enhanced data security, such as role-based access, encryption, regular security updates, and focus on compliance with data regulations Robust security measures, including multi-level authentication, encryption, and comprehensive compliance with data regulations
Integration Limited compatibility with other business and HR systems Smooth integration with various business systems, like customer relationship management (CRM), accounting, or enterprise resource planning (ERP) Enterprise-wide integration with business systems, such as accounting, CRM, ERP, communications, and more
Pricing Priced lower than other systems due to limited functionality Moderate pricing with a broader feature set and the ability to customize and add on features at an extra cost if required Higher price tag due to its strategic focus and comprehensive features, plus higher additional costs for ongoing maintenance and support
Best for Small- to medium-sized businesses with straightforward HR needs and limited budgets Medium- to large-sized companies seeking a slightly more comprehensive HR solution but without extensive strategic focus Large enterprises or those prioritizing strategic alignment between HR and business goals

Which HR System Is Right for You?

This depends on your company’s specific needs. Consider the below factors when making a decision.

  • Organizational requirements: Take into consideration the size of your company, its future growth plans and scalability, and the complexity of HR demands.
  • Functionality: Define the specific features you need—for instance, payroll, data management, and basic reporting features are necessary for automating administrative tasks.
  • Integration and compatibility: Evaluate if your chosen systems are compatible with your existing business systems to avoid disruptions.
  • Budget: Assess initial and ongoing costs for maintenance and look at what aligns with your budget for HR automation.
  • User experience: Consider your user base, how tech-savvy they are, and the interface they’ll be comfortable with adopting to prevent resistance and the need for extensive training.
  • Compliance and security: Ensure your chosen system supports the compliance and security regulations in your specific industry.
  • Vendor support and reputation: Compare track records, customer reviews, and the level of customer support provided by different vendors before choosing one.
  • Free trial or demo: Ask the vendor’s sales team for a free trial or live demo to ensure the product aligns with your expectations before committing to it.

Conclusion

Choosing the right type of HR system is crucial to meeting your automation objectives and running a smooth and effective HR practice.

An HRIS helps to streamline purely administrative tasks, whereas an HRMS goes one step further and supports management processes, such as recruitment and performance. HCM systems are an all-in-one solution focused on strategic initiatives, such as training and development, total rewards strategy, workforce analytics, and more.

Evaluate your company’s specific needs, budgets, resources, and integration and compliance requirements to narrow down your options and pick the right HR system for your business.

FAQs

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Yashna Wahal
HR and CRM Expert
Yashna Wahal
HR and CRM Expert

Yashna has nearly a decade of experience in HR, covering topics like Talent & Development, Hiring, HR Business Partnering, Employee Engagement, Compensation and Performance Management. She's the former VP of HR at JP Morgan in London, followed by being the Head of HR at Plotify Financial in both London and New York. Yashna earned a BSC in Psychology from UCL and an MBA from Imperial College London.