Understanding On-Premise vs Cloud HR Software

Introduction

When comparing On-Premise vs Cloud HR Software, data security matters. While cloud solutions dominate conversations about HR software, on-premise options provide significant advantages for UK organisations with specific data needs. Recent research shows 37% of enterprise organisations still prefer on-premise solutions for sensitive systems, including HR data management.

Key Benefits of On-Premise HR Software

On-premise HR software gives you complete control of your data—your employee information stays within your physical infrastructure.

No more worrying about cross-border data transfers or third-party access.

This matters especially for manufacturing companies handling sensitive employee and production data.

Unlike one-size-fits-all cloud offerings, on-premise solutions can be tailored to your exact business needs.

For organisations making long-term investments, on-premise HR software often costs less over time. Bloor Research International found that a 250-employee organisation typically saves about £65,000 over five years with on-premise deployment.

Cloud HR Software Advantages

Cloud-based HR solutions let employees and managers access the system from anywhere with internet connection.

Their subscription-based pricing means lower initial investment, making cloud solutions attractive for organisations with limited capital budgets.

Automatic updates ensure you always have the latest features without manual work.

This approach works best for companies with limited IT capacity or those growing rapidly with frequent organisational changes.

Evaluating Data Security and Compliance

Who really controls your HR data?

Many organisations wrongly assume cloud solutions automatically provide better security, but that’s not always true.

With on-premise deployment, you control all servers and databases containing sensitive employee information. What does this mean in practice?

• Complete Data Residency Control: You decide exactly where your data physically sits, ensuring it never leaves UK jurisdiction without your permission.
• No Cross-Border Transfer Risks: Your data doesn’t fall under complex international transfer regulations.
• Direct Security Implementation: Your internal teams implement and verify security measures rather than trusting vendor promises.

The UK’s Information Commissioner’s Office (ICO) emphasises that organisations must maintain “appropriate technical and organisational measures” to protect personal data. On-premise solutions give you direct control over these measures, making compliance documentation simpler

Think of cloud providers as apartment buildings where thousands of tenants store valuables. They become prime targets for sophisticated thieves.

As David Green, HR technology influencer, notes: “The notion that cloud is automatically more secure is oversimplistic. For organisations with mature security practices and sensitive data requirements, on-premise solutions can provide superior control”.

Cost Considerations: Short vs Long Term

How does the financial picture change when you look beyond the first year?

While cloud solutions need less money upfront, the long-term finances often favour on-premise for organisations with stable workforce numbers and existing IT infrastructure.

A complete 5-year cost analysis shows important differences:

Cost Factor	On-Premise	Cloud-Based
Initial Investment	£50,000-£200,000	Minimal upfront costs
Ongoing Costs	18-22% of licence cost annually	£10-30 per employee monthly
Hardware Costs	Server infrastructure required	Minimal hardware requirements
IT Personnel	Dedicated IT support needed	Less IT support required
Customisation	One-time development costs	Recurring costs for customisations
5-Year TCO (250 employees)	£210,000	£275,000

Source: Bloor Research International Cost Analysis Report 2024

The financial advantage becomes even clearer for organisations planning to use the system for longer periods.

After the initial investment is spread out, ongoing costs stay relatively stable, while cloud subscription fees typically increase year after year.

Lucy Adams, founder of Disruptive HR, points out: “CFOs increasingly recognise that the subscription model of cloud HR systems creates an endless commitment to escalating costs. For organisations planning for the long term, the traditional capital investment model often proves more economical after the 3-4 year mark”.

 

Debunking Common Myths about On-Premise HR Software

On-premise HR solutions face misconceptions that can make organisations overlook their benefits. Let’s address these myths:

Myth 1: “On-Premise Solutions Lack Modern Features”

Reality: Modern on-premise HR systems like People Inc HR offer mobile access, workflow automation, and detailed analytics. The difference is in how you deploy it, not what it can do.

“Many HR leaders are surprised to discover that modern on-premise solutions offer capabilities that match or exceed cloud alternatives, particularly regarding reporting flexibility,” says Gemma Dale, HR and Future of Work Expert

Myth 2: “Updates and Maintenance Are Always Problematic”

Reality: Today’s on-premise solutions have much better update processes. Plus, you control when updates happen, preventing disruption during busy business periods.

Mark Puncher, Employer Branding Expert, notes: “The ability to control when system updates occur represents a significant advantage for organisations with seasonal business cycles or limited change windows”.

Myth 3: “On-Premise Means No Remote Access”

Reality: Modern on-premise HR systems provide secure web interfaces and mobile apps, giving you anywhere access while maintaining security benefits.

The COVID-19 pandemic pushed on-premise solutions to improve remote access, with 94% now offering comprehensive mobile access according to CIPD research.

 

UK Compliance Considerations

Worried about meeting UK regulations with your HR software?

For UK manufacturing organisations, compliance with local employment law adds complexity to HR software decisions.

UK-Specific Employment Law Requirements

On-premise HR solutions help navigate UK regulations by allowing you to:

• Manage UK Working Time Rules: Set up systems to match industry-specific working time rules and track opt-outs.
• Handle Right to Work Documentation: Create workflows for maintaining proper documentation, especially important after Brexit.
• Calculate Statutory Leave: Implement holiday accrual rules based on UK calculations and bank holiday management.

ACAS points out that employers must keep specific records to show compliance with UK employment law, making customisable on-premise systems valuable for creating appropriate documentation processes.

Data Protection Impact Assessments (DPIAs)

For companies processing sensitive employee data, the ICO recommends conducting Data Protection Impact Assessments. On-premise solutions make this easier by:

• Keeping Data in the UK: When data stays on UK soil, you avoid complex international transfer requirements.
• Controlling Security Directly: It’s easier to document security measures when your organisation controls the entire system.

According to ICO guidance, organisations must thoroughly document their DPIA process, which becomes more straightforward when all systems and data remain under your direct control.

 

Decision Framework: How to Choose Between On-Premise and Cloud HR

Not sure which option fits your company best? Consider these key factors:

1. Data Sensitivity and Regulatory Requirements (30%)
   • Do you handle highly sensitive HR data? On-premise gives you better control.
   • Do you deal with multiple regulations? On-premise makes compliance simpler.
2. Budget Structure and Financial Strategy (25%)
   • Do you prefer capital expenditure? On-premise aligns better.
   • Are you planning for 5+ years? On-premise offers better long-term value.
3. Customisation and Integration Requirements (25%)
   • Do you have unique manufacturing processes? On-premise provides more flexibility.
   • Need to connect with legacy systems? On-premise typically works better.
4. IT Resources and Growth Projections (20%)
   • Do you have a strong IT team? On-premise uses these resources well.
   • Is your growth stable and predictable? On-premise delivers consistent performance.

Dave Ulrich, HR Thought Leader, suggests: “The deployment decision should align with your organisation’s strategic identity. Companies that prioritise control, customisation, and long-term stability often find on-premise solutions better aligned with their fundamental values” .

Conclusion

When it comes to HR software, one size doesn’t fit all.

For organisations that value data control, security, customisation, and long-term cost management, on-premise solutions like People Inc HR continue to offer advantages that cloud alternatives simply cannot match.

For HR directors like Sarah in manufacturing environments, on-premise HR software often provides the right balance of control, customisation, and compliance capabilities needed to support unique operational requirements while delivering long-term value.

Ready to explore how an on-premise HR solution could benefit your organisation? Book a free demo of People Inc HR to see firsthand how this flexible, secure platform can transform your HR operations.

FAQs

What are the main differences between on-premise and cloud HR software?

On-premise HR software is installed on your organisation’s servers, giving you complete control over data and infrastructure. Cloud HR software is hosted on the vendor’s servers and accessed via the internet. The primary differences involve data control, cost structure (capital vs subscription), customisation potential (greater with on-premise), and maintenance responsibility.

How does on-premise HR software ensure data security and compliance?

On-premise HR software enhances security by keeping all data within your organisation’s physical infrastructure, providing complete data sovereignty and eliminating third-party access concerns. For GDPR compliance, on-premise deployment simplifies documentation of security measures since you maintain direct control over the entire system.

Are there ongoing costs associated with on-premise solutions?

Yes, on-premise solutions involve ongoing costs, primarily annual maintenance fees (typically 18-22% of initial licence cost), IT support resources, and occasional upgrade expenses. However, these costs are generally more stable than cloud subscription fees, which typically increase annually. For many organisations, the total cost of ownership over 5+ years is lower with on-premise deployment.

Can on-premise HR software be accessed remotely?

Yes, modern on-premise HR software offers secure web interfaces and mobile applications. According to CIPD research, 94% of on-premise HR systems now offer comprehensive mobile access capabilities, comparable to cloud alternatives. The COVID-19 pandemic accelerated the development of remote access features for on-premise solutions

What industries benefit most from on-premise HR solutions?

Industries with stringent data security requirements or unique operational processes typically benefit most from on-premise HR solutions, including:

• Manufacturing (particularly with defence contracts)
• Financial services (with strict regulatory requirements)
• Healthcare (handling sensitive patient and staff data)
• Government and public sector (with specific security protocols)
• Legal services (managing highly confidential information)

How do I know if on-premise HR software is right for my business?

Assess these key factors:

• Data sensitivity: If you handle highly sensitive employee data, on-premise offers better control
• Budget structure: If you prefer capital expenditure and have a 5+ year planning horizon, on-premise is often more economical
• Customisation needs: If your processes are unique or industry-specific, on-premise offers superior customisation potential
• IT resources: If you have a strong internal IT team, on-premise deployment leverages these resources effectively

What are the potential disadvantages of on-premise HR software?

While on-premise solutions offer many benefits, they also present challenges:

• Higher initial investment and implementation time
• Requirement for internal IT expertise or support partner
• Responsibility for security and maintenance falls on your organisation
• Manual updates require planning and scheduling
• May be less suitable for organisations with rapid growth or frequent structural changes 

 

More information

Read our YouManageHR (Cloud) vs People Inc. HR (on-Premise) article to see an example of how these systems compare.

To find out if either a on-premise or Cloud-HR System is right for your business contact us on 0330 223 6180 or via email enquiries@Peoplefirsthr.co.uk . Alternatively, click the button below to request more information and one of our consultants will be in touch shortly.