November 14, 2022
What are cloud-based and self-hosted payroll software?
What are the benefits of cloud-based payroll management?
Are there any issues with cloud-based payroll software?
Self-hosted or cloud-based payroll system? Which one is better?
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File storage, data backup, disaster recovery… Cloud technology nowadays permeates many different aspects of business. According to Eurostat, 41% of organizations in the EU used cloud computing in 2021. And although the main areas of use were email hosting and file storage, cloud computing is undoubtedly gaining ground in other areas of business too, including HCRM and payroll.
In fact, the global cloud-based payroll software market, whose value was estimated at around USD 7.34 billion in 2018, is expected to reach a value of USD 17.39 billion by the end of 2027. The prognostics are backed up by recent studies which show that 40% of organizations are planning on modernizing their current payroll systems by moving their payroll from on-premise software to the cloud.
But what are the reasons for moving payroll to the cloud? And are there any cases where it’s still better to self-host your payroll management system? Read on as we discuss the differences between self-hosted and cloud-based payroll and highlight the different advantages and drawbacks.
When we talk about software, self-hosting refers to a software system that you install and host on your own server. Opting for self-hosting means that you are responsible for system administration, maintenance and more. The costs of self-hosting therefore include the server costs as well as the maintenance costs.
In the case of cloud-based software, on the other hand, the software is hosted on the server of an external service provider and accessed via the cloud by simply logging into your account online. When using cloud-based software, you basically pay a service provider for taking care of the server, the software, security updates and everything that comes with it. Other commonly used terms for cloud-based software are hosted software or managed software. They all fall under the umbrella term “Software-as-a-Service” (SaaS).
So, transferring this information onto payroll management systems, we can define self-hosted and cloud-based payroll as follows:
Cloud-based payroll software: A payroll management system which is hosted on and accessed via an external service provider’s remote server (i.e. cloud), meaning the organization using the payroll system only needs a computer and an internet connection to access the software.
Self-hosted payroll management system: Payroll software that is hosted, run, maintained and accessed on internal servers is called self-hosted. In contrast to cloud-based payroll, organizations opting for self-hosting need the necessary server capacities and are also in charge of system security, updating and more.
Now that you know what the difference is between self-hosting your payroll software and accessing it on the cloud, you’ll probably want to know which option to go for. So let’s look at the advantages and drawbacks of self-hosted and cloud-based payroll systems. Since the two solutions complement each other, offering strengths and opportunities where the other shows weaknesses, we’ll focus on cloud-based payroll solutions.
Running payroll on the cloud comes with multiple benefits for the business, including increased efficiency and productivity, fast deployment, enhanced security and more. Here’s the full list of advantages linked to online payroll software.
Self-hosting your payroll software requires heavy upfront investment and often entails hidden costs (costs for backups, domain name registration etc.) which can quickly exceed your initial budget plan. When opting for a cloud payroll system, you simply pay a monthly (or annual) subscription fee and that’s it. No upfront costs and no hidden or additional costs. That’s why, in many cases, investing in cloud-based HR and payroll works out cheaper than self-hosting.
Self-hosted payroll software requires a lot of preparation to set things up, which slows down deployment and discourages many companies from replacing their outdated payroll management systems. The servers need to be bought and set up, the security features need to be installed and troubleshooting protocols need to be developed, to name but a few. A cloud-based payroll software solution can be deployed much faster, since all it takes is to subscribe to the managed payroll software and to configure the system to your needs.
Cloud payroll services also have the benefit that they are far more convenient. Whenever you need the software, you just log onto it and can start working immediately. No updates that prevent you from doing your work and no need to worry about maintenance and so on, which brings us to the next benefit of cloud-based payroll management.
Not having to go through the complicated set-up process that comes with self-hosting your payroll software is already a big advantage, but having all the maintenance, updates, security patches etc. taken care of is often an even stronger argument in favor of cloud-based payroll solutions. Using a Saas payroll solution means you don’t have to deal with anything related to system maintenance, security or software fixes.
Not only does this free up valuable resources in your IT and payroll team, but it also means less worries. With a managed software solution for your payroll, cyber attacks, outages and troubleshooting aren’t your problem anymore. If there’s a problem, you just turn to the 24/7 technical support.
Since implementing cloud technology to manage your payroll frees up resources and reduces the manpower needed to keep the systems up and running, it also helps increase operational efficiency and productivity in your organization. Not having to worry about security patches, system downtime and other tasks that come with self-hosting means that your team can focus on more important things.
And speaking about software maintenance and updates. Using an externally managed payroll software allows your team to always work with the most up-to-date version of the software that is in line with the latest regulatory changes and payroll rules. This ensures that all compliance requirements are met at all times. What’s more, cloud payroll systems usually reflect the latest technological developments and are designed to optimize efficiency.
One of the biggest struggles companies were facing during the pandemic, when most of their workforce was sent into working from home, was making sure their teams had access to all the systems and tools they needed from outside the business premises. Cloud-based payroll software solves this problem thanks to its remote accessibility. Cloud systems can be accessed from employees anywhere, which makes it the preferred choice for remote-first businesses. Since remote and hybrid work models have become the norm, remote accessibility is an increasingly critical feature businesses should look out for when implementing new software solutions, including payroll.
Historically, concerns about data security were the main reason why businesses held back from using cloud-based payroll services. However, the assumption that payroll on the cloud is less secure than when processed on internal servers has long since been proven wrong. In fact, payroll data stored on the cloud is generally more secure than when stored on-premise, since data centers are typically equipped with multiple electronic and physical safety features which, in most cases, are far more sophisticated than anything a normal business could provide on-premise.
In today’s day and age where the fierce war for talent has brought topics such as employee happiness and retention to the forefront, creating a positive employee experience across the entire employee lifecycle has become crucial. For payroll, this not only means making sure employees have financial stability and are paid on time, but it also means giving them access to their payslips and data online whenever and from wherever they want. Cloud-based payroll and HR solutions accomplish this through built-in self-service functions which allow employees to view and update their data as well as to request PTO, register overtime and more.
Last but not least, cloud-based payroll software is easier to integrate with other tools and systems that are used across your organization, which simplifies data exchanges between different departments and allows everyone to be on the same page. For instance, SaaS payroll solutions like Lano come with their own API which allows its integration with other HCRM and workforce management tools. What’s more, cloud solutions are easily scalable, which means that as your business and the amount of data you process grows, you don’t have to worry about running out of server capacity.
Interested in knowing more about payroll integration? Here you read everything you need to know about the benefits of integrating your HR and payroll software.
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The numerous benefits of managing payroll on the cloud make a clear business case for SaaS when it comes to payroll management. But there also are some issues and limitations that may make self-hosting the preferable solution for a business. These include:
Limited number of users for cloud plans: Depending on the subscription plan, you may only have a limited number of users who can access the software. However, since having too many people accessing your system and data can compromise your payroll security, meaning that it’s generally better to keep the number of users limited, this shouldn’t hold you back from opting for cloud payroll management.
No ownership of the server and data: Some businesses clearly prefer being in control of their data security and privacy and don’t want to entrust an external service provider with their data. Such businesses will typically shy away from cloud payroll and opt for self-hosting instead. However, data security concerns can be eliminated by carefully choosing the right payroll service provider who has strong data protection standards and comes highly recommended.
The question of whether to use a cloud-based payroll software or to opt for self-hosting can’t always be answered based on the benefits and drawbacks of the respective payroll management option alone. In fact, team size, IT capacities and other factors can determine which option the business should choose.
In most cases, small and medium-sized businesses neither have the necessary IT infrastructure nor the manpower to self-host payroll; therefore, cloud-based payroll is often the better option for SMBs. Large enterprises with strong IT teams and large server capacities, on the other hand, are generally in a better position to self-host their payroll, which means that both options should be carefully evaluated and weighed against each other.
The cost of the respective solution is another factor to consider. Depending on the number of employees, it may actually work out cheaper for the business to invest into a self-hosting set-up once and then only having to pay for maintenance and patches, compared to paying a monthly SaaS subscription fee which is typically higher the more employees you have on your payroll. Also, as we’ve seen before, compliance requirements and privacy laws may prevent organizations from entrusting external payroll software providers with their data.
For businesses operating on a global scale, the advantages of a cloud-based payroll software solution are even more significant. When payroll data is collected and processed in different countries all over the world and then transferred between systems and even across international borders, data security and compliance with global data protection regulations are crucial. Not to forget that, in a globally distributed team, payroll managers and other high-level executives are located in different countries, yet they all need to have constant access to the system, regardless of their location.
That’s where a global cloud-based payroll solution like Lano comes into play. With Lano’s global payroll solution, businesses can consolidate their global employee and salary data in one centralized platform where they can view and access their data at any given moment and retrieve detailed data insights for their reporting. Based on modern cloud technology, our payroll platform provides much higher security standards than legacy technologies (including SSL encryption, advanced firewalls as well as encrypted data storage and transfers) and is fully GDPR-compliant. Book a demo with our expert team to learn more about how Lano can help you manage payroll for your global team.
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