We are operating in an age where integrating technology into operations is the best way to maximize the potential of our workforce. However, it needs to be the right tech for our organization’s needs. Though you may have heard the terms human capital management (HCM) solution and human resources management system (HRMS) used freely within the industry, as an HR professional, it’s important to know and understand what makes each of these incredibly valuable tools different.

Both are software platforms used by organizations to manage their workforce, optimize and streamline HR processes, and enhance workforce efficiency. However, each differs significantly in scope, focus, and strategic implications. Read on to learn more about the differences between an HCM solution and an HR management system.

What is a Human Capital Management Solution?

Human capital management refers to a strategic approach to managing an organization’s employees. It goes beyond the traditional administrative HR tasks like payroll and benefits and instead focuses on getting the most value out of your workforce. HCM solutions are systems and resources built to optimize the use of human capital within an organization, aligning it with overall business goals and strategies.

Human capital management software usually provides tools and resources for talent management, workforce analytics, learning and development, performance management, employee engagement, and organizational culture. These solutions often integrate with other business systems such as finance and operations for a more holistic view of organizational performance.

HR professionals use HCM software to streamline HR processes, manage talent, and contribute to workforce planning. Managers can tap HCM tools to access employee data, track performance, and make decisions about talent development, while executives rely on HCM solutions to align workforce strategies with overall business objectives for organizational success.

Features and Functions

  • Talent Management: Facilitate and manage recruitment, onboarding, performance management, succession planning, and career development.
  • Workforce Analytics: Gain workforce demographics, performance metrics, and employee engagement to support data-driven decision-making.
  • Learning and Development: Create and deliver training and development programs, learning management systems, and skills assessment tools.
  • Workforce Planning: Predict future workforce needs, identify skill gaps, and ensure the right talent is available when needed.
  • Employee Engagement: Send surveys, feedback forms, and recognition programs to foster a positive work environment.
  • Compensation and Benefits Management: Automate the administration of compensation packages, benefits programs, and payroll processing.
  • Compliance Management: Ensure compliance with labor laws, regulations, and internal policies.

Who is a Human Capital Management Solution Ideal For?

Human capital management solutions are commonly used by large organizations with complex workforce management needs spanning multiple departments, locations, and regions. Medium-sized businesses can also benefit from using HCM solutions to streamline HR processes, manage talent effectively, and support business growth. Some HCM solutions have features tailored to specific and complex industries.

What is an HR Management System (HRMS)?

HRMS systems primarily focus on managing administrative HR tasks efficiently, such as:

  • Employee record management
  • Payroll processing
  • Benefits administration
  • Time and attendance tracking
  • Compliance management

An HRMS streamlines routine HR processes, automates repetitive tasks, and ensures compliance with labor laws and regulations. While HRM systems may include some elements of talent management and workforce planning, their primary function is to handle the daily operational aspects of human resource management more efficiently.

HR professionals use HRMS systems to efficiently manage employee data, streamline administrative tasks such as payroll processing and benefits administration, and ensure compliance with labor laws and regulations. Managers and supervisors use HRMS solutions to access employee information, track time and attendance, manage performance reviews, and make informed decisions about workforce management. Employees depend on the system’s features to access self-service portals to update personal information, view pay stubs, request time off, and enroll in benefits programs.

Features and Functions:

  • Employee Data Management: Provides a centralized place for storing and managing employee information such as contact details, employment history, qualifications, and performance records.
  • Payroll Processing: Automates payroll calculations, deductions, and tax withholdings, generates paychecks or direct deposits, and ensures compliance with payroll regulations.
  • Benefits Administration: Manages employee benefits programs such as health insurance, retirement plans, and leave policies, including enrollment, eligibility determination, and tracking.
  • Time and Attendance Tracking: Records employee work hours, tracks attendance, manages leave requests, and generates timesheets for payroll processing.
  • Performance Management: Facilitates performance appraisal processes, sets goals and objectives, tracks progress, and provides feedback to employees.
  • Recruitment and Onboarding: Comprehensibly supports the recruitment process including applicant tracking and electronic document management.
  • Compliance Management: Ensures compliance with labor laws, regulations, and internal policies through automated compliance checks, reporting, and audit trails.
  • Self-Service Portals: Empowers employees to access and update their personal information, view pay statements, request time off, and participate in training and development programs through self-service portals for better employee engagement.

Who is an HR Management System Ideal For?

Small and medium businesses commonly use HRMS systems to manage employee data and ensure compliance with labor regulations. For core HR tasks like payroll and benefits, an HRMS is sufficient and is typically more affordable and user-friendly than HCM software.

What are the differences between HR Management Systems and HCM Solutions?

While the similarities between these two categories of solutions are clear, there are some fundamental differences in how they perform that can make all the difference when considering which is best for your organization. These areas include:

  • Focus: HRMS systems focus on administrative tasks of HR, like payroll and benefits. HCM solutions take a broader approach, viewing employees as assets to be developed and providing tools for the entire employee lifecycle. For businesses looking for software to help go beyond routine HR tasks, an HCM solution may be the better choice.
  • Scope: HRMS solutions are designed to handle core HR functions efficiently, with some features that go deeper into the employee experience. HCM solutions have a broader scope, encompassing talent management, performance management, and employee engagement, along with core HR functionalities.
  • Data and Analytics: HCM solutions leverage data and analytics on a larger scale than an HRMS. This allows for better workforce planning, skills gap identification, and strategic decision-making. With an HCM solution, you can use powerful data to drive HR strategies and improve organizational performance. With an HRMS, you are mostly helping your human resources operations run more efficiently and effectively.
  • Employee Experience: The employee experience plays a crucial role in attracting and retaining top talent. HCM solutions offer features like employee self-service portals and mobile access. For organizations prioritizing employee-centric approaches to HR management, an HCM solution can make a significant difference.

Which Option Is Best for You?

The simple answer to this age-old question is: It depends on your organization, challenges, resources, and overall needs. Some things to consider:

  • Current HR Processes: Are your existing HR processes manual and time-consuming? Do you only need core functions like automation, data and analytics, payroll, benefits admin, etc., or would additional features like talent management or employee engagement be a greater benefit? Ask questions like these to determine what kind of help you need from a software solution to improve your processes. This can help point you in one direction or another.
  • Scalability: How large is your business today? Are you anticipating significant growth? Your solution should be able to handle the size of your organization as it stands and also be able to match your growth plans. HCM solutions are often a good fit for medium-to-large companies and will scale with your needs.
  • Data and Analytics: What kind of data and analysis do you need? In what formats would be beneficial? HCM solutions offer robust reporting and analytics tools to track workforce trends, identify skills gaps, and improve talent management strategies. HRMS systems also provide reporting but on a smaller scale.
  • Cost: How much can you afford to invest in set-up, implementation, and ongoing support? HRMS systems are generally less expensive than HCM solutions. However, the increased efficiency of an HCM system can lead to a better return on investment for larger companies.
  • Implementation Complexity: What kind of time and resources can you put into onboarding a new solution? Will it integrate with your existing systems or will there need to be extensive changes made? Depending on the type of solutions you’re considering, you’ll want to look for ones that make the most of the systems you currently have, will not significantly disrupt your operations, and are easy to implement.
  • Vendor Support: Can your existing teams work with your software vendor or HR partner to get your new solutions up and running? Will the vendor provide ongoing training and support as your organization learns the system? Will they provide technical support and troubleshooting services? These are all important questions to ask.
  • User Interface: Is the solution easy to use? Is it intuitive? Choose a system with a user-friendly interface that your HR team and employees can easily navigate and utilize.

You’ve Got a Partner in Axiom

While both HRM systems and HCM solutions are great options, the choice ultimately depends on the needs of your business. For organizations looking to elevate their HR practices, and drive employee engagement, an HCM solution provides the capabilities needed to thrive in today’s competitive landscape. HCM solutions cover a broader range of functions aimed at strategic workforce management and development, while HRM systems primarily focus on streamlining administrative HR tasks.

Whether your organization requires the strategic depth of an HCM solution or the streamlined functionality of an HRMS, Axiom Human Resource Solutions offers a comprehensive suite of software solutions powered by UKG Ready to meet your unique requirements. With user-friendly interfaces, robust support, and a commitment to driving organizational success, Axiom serves as a trusted partner in elevating HR practices and fostering employee engagement.

Contact Axiom Human Resource Solutions today to schedule a free consultation and learn how our HCM solutions and HRMS systems can transform your HR operations and empower your people.