Is On-Premise Payroll Software Really Cheaper Than Cloud-Based Options? Let's Break It Down

One of the most frequently asked questions these days is, should we choose a cloud-based (SaaS) or an on-premise software, especially when it comes to choosing payroll software. I have seen people confused while choosing between these two platforms.

The most important reason why a person/organization even considers on-premise software is because of the notion that it would be less expensive than SaaS software. A SaaS platform has a recurring pricing model while on-premise software has a one-time purchase cost, thus a cloud-based (SaaS) system is more costly. I believe this perception to be wrong because that is not the complete scenario.

There are many different types of costs involved in the case of on-premise software, and the cumulative costing comparison of the two platforms tells a different story.

Cloud-based Payroll Pricing Structure (SaaS)

- Subscription Fees (monthly/quarterly/yearly) - Has a recurring cost which the customer has to pay regularly after a particular interval.
- Implementation & setup cost - This is a one-time payment incurred by the customer at the time of implementation of the system.

On-premise software

- License Fee - This is a one-time cost incurred by the customer to attain the license of the product.
- Implementation & setup cost - A one-time payment to implement the complete software.
- Maintenance cost - Cost incurred for maintenance at specified time intervals.
- Upgrade cost - Cost incurred to upgrade the system in case of major upgrades.
- Support cost - Cost incurred by the client to get support from the software vendor.
- Customization & Integration cost - These are the costs incurred to customize the software according to the organization's needs.

Thus, the total ownership cost (TOC) in the case of on-premise payroll software tends to exceed that of SaaS software.

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Deciding between a cloud-based (SaaS) or an on-premise payroll software can indeed be a complex task. While it may seem like on-premise software is less expensive due to its one-time cost, this is often a misconception. The total cost of ownership (TCO) is a more accurate measure to consider, as it takes into account all types of costs.

Here's a simple comparison of the two:

📩 Cloud-based Payroll Pricing Structure (SaaS):

- Subscription Fees (monthly/quarterly/yearly): This is a recurring cost, paid at regular intervals.
- Implementation & Setup Cost: This is a one-time payment made when the system is implemented.

📇 On-Premise Software:

- License Fee: This is a one-time cost for obtaining the product license.
- Implementation & Setup Cost: A one-time payment to implement the software.
- Maintenance Cost: Recurring cost for maintenance.
- Upgrade Cost: Costs for major system upgrades.
- Support Cost: Costs for vendor support.
- Customization & Integration Cost: Costs to tailor the software to your organization's needs.

When you consider all these costs, the TCO for on-premise software can often exceed that of a SaaS solution.

It's also beneficial to consider other factors such as:
- Flexibility: SaaS solutions often offer more flexibility as they're accessible from any location with an internet connection.
- Updates: SaaS solutions typically have automatic updates, ensuring you always have the latest features and security patches.
- Scalability: SaaS solutions can be easily scaled up or down to match your business needs.

Remember, making the right choice depends on your organization's specific needs and circumstances. It's always a good idea to do a comprehensive cost-benefit analysis before making a decision.

If you're looking for a SaaS payroll solution, KEKA HR offers a free trial that you might find helpful.