Five hidden costs when moving to a hosted HR solution

by 05 Nov 2012

Peter Forbes outlines the correct questions to ask when building the business case to move from on-premise to hosted HR solutions.

Most Australian HR vendors now offer a hosted version of their traditional on-premise solutions. This means the infrastructure your HR system runs on (the hardware and underlying software components) are managed by the vendor. This frees you up from having specialised IT staff to manage the technical components of the system to ensure it keeps running.

Moving to a hosted model (or ‘cloud’) for your HR software, even if it’s not SaaS, can offer significant benefits – but make sure you understand some of the potential hidden costs.

Non production environments 

Ask your vendor about how many non production (non-prod) environments come as part of your hosting contract and how often they are refreshed.

If you’re used to having environments for development, testing, sandbox, user acceptance testing and training, then moving to a hosted environment may require thought on how many non-prod environments you really need.

Upgrades and patch management

If your vendor isn’t a true SaaS provider, where every tenant runs the same version of the software, you still need to worry about managing upgrades to the software.

You may be responsible for scheduling and doing normal upgrade activities including testing, integrations, customisations, project management etc.

In most hosted environments, patch management is still left to the customer to request, and the vendor to apply, so you’ll still need to keep current with what’s been released.


Your HR system is usually your master data record for employee information – so you probably have a lot of outward bound interfaces and possibly inbound interfaces for data loads (eg timesheets).

A common oversight when moving to hosted environments is the setup and maintenance of integration and what work needs to be resourced by the vendor.

Flat file integration is the lowest common denominator here but it’s 2012, so web services/API’s should be the integration model of choice for your HR vendor.

Self Service User Management

Self service allows employees and Managers to manage basic and increasingly advanced HR and Payroll requests.

Most organisations decide to reduce their user management overhead by remotely authenticating user/passwords against a corporate LDAP, or go a step further to configure Single Sign-On (SSO).

Moving to a hosted environment can introduce complexity in this arrangement and requires additional effort on the organisation to ensure the hosted application can see the internal LDAP server.  Usually a dedicated VPN connection provides the answer.

Otherwise, using external authentication mechanisms like SAML or OpenID will be required if you don’t want the overhead of managing self-service users within the HR system.

Reporting and DIY Improvements

For most HRIS Managers, it’s not long before you’re longing for a new report or to add a screen to capture additional information or manage a workflow.

Being a capable system savvy person, you develop a report using your favourite reporting tool or ask the IT guys to whip some new screens or tables to store some additional information.  Pretty soon, you’ve got a bunch of internal reports and add-ons that you can’t live without.

In a hosted environment, the DIY approach can be tricky at best and not available at worst.

In a hosted environment, the vendor is responsible for ensuring your system remains stable and available – therefore they are risk averse to direct database access or allowing third party developed extensions in.

Allowing direct database access and installing third party developments may not be allowed or approval might be a chargeable exercise.

In summary

So when you’re building the business case for moving on-premise to a hosted HR solution, make sure you ask the right questions upfront to reveal the additional layers of complexity and hidden costs.

The good news is that vendors are responding and developing their hosted offerings by addressing many of these issues.

About the author


Peter Forbes is the managing director of Navigo, a HR technology consulting firm, which he co founded in 2002. Peter manages a team of professionals who provide solutions and advice on HR systems, specialising in Australian HRIS products.