Founders Series Vol 4: HR Tech, Is It Worth the Investment?
TL;DR
- 15 or fewer employees means you probably don’t need HR software. A tidy spreadsheet and a shared drive will do for holidays, headcount planning, payroll etc.
- Anything above 20 becomes more of a GDPR risk, on top of the growing pains around onboarding, offboarding, employee experience and so on.
- I usually advise my clients to go for the admin package first. Things like performance, engagement and survey modules can wait until someone will actually run them and the data is being reviewed properly.
- The tool is only ever as good as its set-up. A badly implemented system with half-arsed permissions is worse than the spreadsheet it replaced.
So, is HR tech worth the investment? Short answer: in my opinion, always yes, earlier than you’d think, but only if you buy for the problem you actually have.
What am I actually talking about
HR tech is a big label for a few different things, and if I am honest, a bit of a buzz term at the minute. The core is an HRIS (the system that holds employee records: contracts, salaries, holiday, absence, documents). Around it sit payroll, applicant tracking (recruitment pipelines), and the shinier modules for performance reviews, engagement surveys, learning and development and such.
When clients ask whether HR tech is worth it, or push back when I tell them they need it, they almost always mean the HRIS. That’s the right place to start, so it’s what I’ll focus on here.
The cost of not having it
The licence fee is the visible number. It’s usually priced per employee, per module, and the modules do tend to stack up over time.
However, there’s a trade-off to weigh up. Is someone senior, maybe you, doing holiday tracking, contract filing and payroll changes by hand? Is the drive you are using compliant? Is it secure? Does it have 2FA? Then there is the human element: forgetfulness, data integrity, errors… and these errors compound. A missed salary change hits payroll and we have an angry employee. A right-to-work document sits unfiled in an inbox and we have a civil penalty of up to £45,000 per person on our hands, because a basic right to work check of a passport hasn’t been done (it rises to £60,000 for a repeat breach). None of it feels urgent or worth the money until it is.
Outside of being told to get an HR system by yours truly or another seasoned HR professional, it’s usually the investors. They will ask for employment contracts, option paperwork, salary history and headcount data, and they’ll want it in days. I’ve watched teams lose a week of a raise, countless times, to digging through email attachments and Google files. A decent HRIS turns that into an export, keeps the data fresh, keeps the data controller happy and the HR executive even happier.
When a spreadsheet is genuinely fine
Below roughly 10 to 15 people, I’d rarely tell a client to buy an HRIS. At that size you can hold the whole company in your head (please don’t). A well-kept spreadsheet, a sensible folder structure and a payroll provider will suffice, but the keyword here is well-kept. If you go this route, keep it disciplined: one source of truth, salary history logged, signed contracts filed where you can find them. Do that and the eventual migration to a proper system should be relatively painless, because clean data is the hard part.
The tipping points
In my experience there are four, and hitting any one of them is the signal that we need to talk about our HR tech budget:
- Headcount passes 20. Manual admin stops being a rounding error in someone’s week.
- You appoint your first managers. They need to see their team’s holiday, salary and review history without emailing you (or me) for it.
- A funding round is on the horizon. Get the system in before due diligence, not during.
- You hire outside the UK. Multi-country employment multiplies the paperwork, and spreadsheets cope badly.
What it actually costs
Entry-level UK tools run at a few pounds per employee per month, with comparisons clustering around £3 to £10. The mid-market platforms startups tend to grow into cost more and usually price by quote, with the costs rising as you add modules. HiBob, for example, is the one I see (and use personally) the most.
For a 25-person company, even the mid-market option is a four-figure annual cost. Set that against the hours it returns and the mistakes it prevents and it’s one of the easier lines in the budget to defend. Not to mention the cost of the aggravated HR person and employees who can’t access the right files or data.
There’s also the cost of implementing the system. Migrating your data, setting up approval flows, getting payroll talking to the system. Trying to rush this or do it yourself means a bad day for you and I! I’ve been brought in more than once to rescue a system that was bought with good intentions and set up in a hurry, and it was five days wasted before we even started.
So, HR tech, is it worth it?
Yes, for 20+ people, or earlier if a raise or an international hire is coming. The admin layer needs to be considered first, put real care into the set-up and the employee view, and treat the shiny modules as a later decision rather than a default.
Choosing or implementing HR software for startups is something I do hands-on for clients, including HiBob implementation end to end. If you’re earlier than that and just want the basics in order, start with HR foundations, or bring in a fractional HR director to own the lot. Get in touch if you’d like a hand.