Best HR Software for Small Businesses (2023)

What is the best Human Resources software for small business? 

The best HR software for a small business will be that which solves some of the organization’s pain points through features like employee self-service and onboarding automation, while fitting into the desired budget. Some of the best vendors of HR solutions for small teams are Freshteam, JazzHR, FactorialHR, and Zoho People. 

Why does a small business need HR software? 

Small businesses can use HR technology to save time, improve the employee experience, employee performance, and hiring process. 

What does HRIS stand for?

HRIS stands for Human Resource Information System. 

What does HCM stand for?

HCM stands for Human Capital Management.

Most small businesses take a while to recognize that they need HR software. They’ll use spreadsheets for a people directory and handle tasks like running payroll and setting up benefits themselves. This might make sense until it all gets impossible to manage. This may be true for a majority of small organizations, especially when you consider that 56% of small businesses have an HR department of only one person, according to research from BerniePortal (an HRIS provider).

So if you’re now sold on the idea of getting some form of HR software, congratulations! The next step, however, is to avoid the common pitfalls that come when choosing vendors. Making the wrong decision could mean that the headaches you’re trying to avoid with this purchase don’t all go away, so it’s important to lookout for the following mistakes: 

• Choosing a vendor with no employee self-service: Since the whole idea is to save time, your HR tool should let people alter their own employee records. This can be especially helpful for freeing up HR’s time if it’s done as an automated workflow during onboarding. 
• Choosing a vendor that lacks automation: Speaking of automated workflows, it’s also recommended that your vendor has this capability in at least some of their features. Whether it’s running payroll, onboarding, or signing documents, there are a lot of menial tasks that can be done automatically.
• Foregoing the necessary integrations: Further, if the decision process is rushed, sometimes you could end up buying a tool only to find out later that it doesn’t integrate with a key component of your tech stack. If this is the case, it will surely lead to difficulty down the road, since a good deal of the data transfer between tools has to be done manually. ‍
• Rushing the implementation: With cloud-based HR software for small businesses, the most common situation is for implementation to be a self-service process. However, this is where rushing things can send you down the wrong path. If the data is transferred or inputted incorrectly, it will lead to mistakes like giving admin access to the wrong team member or having the wrong amount for someone’s payroll. To avoid this, it’s recommended that you choose a vendor with good customer success resources in place and that you actively make use of them.

While reading this, there might still be a small part of you that says “I’m a small business, do I really need a fancy HR system?”. Truth be told, getting HR right is one of the milestones that you need to achieve if you want to grow your business. It’s also paramount to keep your workforce happy, since it’s what you’ll later use to improve on metrics like employee satisfaction rate, engagement, and overall, the much turnover (which can be quite costly). 

So, speaking of the benefits of buying HR software, we’ve already covered how it saves time for HR managers by streamlining and automating certain processes. However, what should also be mentioned is what these managers will be able to do with that spare time. An HR person that has paperwork and recruiting fairly under control can then focus his or her attention on human capital management, improving the overall employee experience at the company, as well as finding ways to foster the company’s culture and develop employees through training programs.

With most of the vendors listed on this roundup, pricing is on a per user per month basis. Some of them will have an additional monthly base fee, and the majority of them will offer custom pricing based on your business needs. Some of them also offer independently-priced add-ons, which is great for small businesses that want to pay only for the features they’ll actually use. 

Now, if you’d like to get a rough idea of what you can expect to budget depending on your organization’s size, we’ve put together the following estimations based on our own experience and conversations our HR expert council:

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We're also crowdsourcing data on HRIS pricing through a survey that's anonymous and takes only two minutes. Anyone who helps out the community by filling it out will get access to the entire data set.

If this is your first HR tech purchase, which features should you be prioritizing? While that depends mostly on your particular situation and business needs, we could say that the top HR tech vendors offer some, if not all, of the following: 

• Employee management: The Core HR functions for any tool should include an employee directory, perhaps an org chart, and the chance for employees to alter their records themselves. As mentioned above, this is key in order to reduce time and make sure everything about an employee’s relationship with the company is up to date, 
• Onboarding & Documents: Many of these tools come with a basic Applicant Tracking System that can do everything from sourcing and managing job postings and interviews all the way to onboarding a new hire. Some of them can also take care of the necessary documentation through automated workflows. You don’t need to be chasing people for their signature if they can access, sign, and upload all the necessary documents themselves through the platform. 
• Employee Performance: An HRMS can also help with defining goals for an employee, both individual and collaborative, and keeping track of it. The same tool could allow for feedback to be recollected and consulted by employees and managers when it’s time for performance reviews. 
• Time Management: If we’re talking about a plan with HR tech essentials, this should include some form of time management, whether it’s for scheduling, time and attendance tracking, processing leave requests, or at the very least syncing with one of the main calendar apps. 
• Benefits Administration: While this is tricky because it can vary a lot from one region or country to another, a vendor should get bonus points if they have a module for you to manage your employee’s benefits as well. 
  

Some other features that you should consider include:

• Social recruiting
• Sourcing
• Reporting & Analytics 
• A good mobile app (that’s for both Android & iOS)
  

As a final note on features, if the vendors you’re looking at happen to not have one of these, make sure that they at least integrate with some tools that do. You should also consider whether those tools fit your budget or not.

Moving on, while most of the top HR software solutions for small businesses like yours offer a free trial or an instant self-service demo, it’s likely that some of them will also have you schedule a live demo with one of their reps. If this is the case with the vendors you’ve narrowed down, it’s really important to come prepared with questions. 

Just because you’re a small business, doesn’t mean that you should be reluctant to control the demo. These solutions are specifically designed for businesses like yours, so it’s better for everyone involved if you can articulate your needs and the use cases you care the most about. 

To get you started with your demo prep, here are some sample questions that you can bring to the demo. You can also download our free excel organizer to make notes on each vendor and compare them later. 

• How will this solution fit into the rest of my tech stack and therefore what integrations do I need?
• How will others in the organization use this solution?
• What are the key features I want to ask about?
• How can this tool improve the experience of our applicants? 
• What are the things that would make me or my coworkers nervous about switching our current processes to this platform? 
• How is employee data kept safe if trusted to this vendor? 
• What conclusions can I start to make about the quality of customer support? Is there a help center? Are the support articles clear and easy to read?