A small business’s HR challenges are felt not only by the HR team. They can include compliance management, workforce training and development, compensation management, and recruitment.

And, addressing these challenges can involve IT, legal, all managers and employees, and external stakeholders (clients, investors, contractors, etc.).

Some of the most common HR challenges U.S.-based small businesses face today are:

  • Fifty percent of small businesses view hiring a new employee in a specific time frame as a daunting task.
  • Staying compliant with changing federal and state laws is especially tough for small businesses given limited resources and HR staff.
  • Seventy-three percent of the U.S. workforce is actively disengaged at work and wants a job change.


These complex challenges require small businesses to turn to innovative solutions. One solution is to automate your HR processes—from sourcing resumes to preparing employees’ exits. HR software can help by storing employee information in a centralized database, streamlining the hiring process, and automating payroll and benefits processes.

When searching for HR software, there are certain core, or must-have, features that nearly all businesses will require. In addition, some businesses may require more advanced HR functionalities.

Knowing which features you require and fully realizing the benefits of those features is a key challenge for many small businesses, so work with your IT team to run a detailed technical analysis to ensure you buy the right solution.

Once your HR requirements are mapped out, shortlisting vendor options becomes much easier.

This article will help small businesses understand which features are an absolute must and which features are necessary for some, but not all, businesses.

What we’ll cover:


Top features: The core ‘must-have’ HR software features

Notable features: Optional features to be considered against specific business needs

Overview of top and notable features of HR software

Chart showing the features and benefits of HR software

Top features: The core ‘must-have’ HR software features

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Reporting and statistics provide valuable insights from employee data


Reporting and statistics features in HR software can generate detailed reports on employee performance, payroll, employee relocation information, and more. This helps HR managers visualize employee data in graphs or charts to easily identify trends and issues regarding performance, absenteeism, salaries, and tax and compliance.

Key facts

  • Eighty-three percent of HR managers believe that workforce-related decisions, such as planning the budget, setting hiring goals, and assessing performance, should be based on an employee analytics reports.
  • Despite this, only 37 percent use data and analytics for people management.

Key technical parameters of reporting and statistics features

  • Evaluate employee data in real time: Analyzing employee types (contractor or full-time) and skills can help you identify and manage hiring requirements. With reporting features, you can more easily identify common issues in the workplace and quickly create a strategy to address them.
  • Create HR reports to manage employee workflows: The key functionality of reporting is to provide real-time insight into all aspects of employees’ transactions with HR. This feature helps you identify bottlenecks and analyze how new services or enhancements can be made based on actual, documented employee requirements and preferences.
  • Build workforce metrics using predictive analytics: Predictive analytics make it possible to forecast employee trends. The indicative metrics analyze the workforce, making it easy to understand data such as the proportion of full-time versus contract employees, average remuneration by role, and promotions awarded.

Key benefits of reporting and statistics features

  • Comprehensive reporting to monitor team progress: Reporting features show employee improvements over time. This can motivate them even more, and it helps managers efficiently monitor team progress and react appropriately. For instance, if a sales rep struggles to hit their monthly targets, identify the issues and offer specialized training and resources to help them improve.
  • Analytical insights to build business strategy: Statistics features offer analytical insights to develop and improve the business strategy. This could include hiring and retaining the top talent or realigning your business vision and core values to your objectives.
  • Intuitive dashboard for decision-making: An interactive dashboard lets you view performance metrics/statistics and insights from employee reports. And an advanced dashboard with predictive analytics capabilities lets you analyze trends such as number of top-performing employees who are likely to quit. This helps you formulate strategies to counter these trends with tactics such as promotions, raises, role changes, or training.

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Personnel management helps to monitor employee productivity


Personnel management, also known as personnel tracking, is primarily about managing employee data such as names, job titles, salaries, benefits information, employment histories, W-4s, emergency contact information, and education qualifications.

This feature helps HR managers set up training, create schedules, allocate projects, and more. It also allows managers to track employee activities and assess fluctuations in employee productivity. For instance, managers can track employee location during work hours to see if tasks are completed on time or not.

Key facts

  • Forty-five percent of HR managers want personnel tracking as one of the main features in an integrated HR suite.
  • Seventy-five percent of employees believe GPS tracking improves accountability.

Key technical parameters of personnel management features

  • Manage time-off requests: Personnel management lets HR managers track employee attendance, plan and approve time-off requests, and automate absence management, workforce planning, and staffing.
  • Track employees via GPS: Some advanced personnel management solutions offer employee tracking via GPS. This functionality is to primarily track in-the-field employees (such as salespeople) who travel frequently for work.
  • Check employee productivity: Real-time tracking helps managers view productivity levels on an average or during certain time periods. This helps you figure out the peak seasons, so that you can hire interns/contract workers to balance your employees’ workloads.

Key benefits of personnel management features

  • Improving employee productivity: This feature helps you view employee productivity levels. By measuring output of an employee in a specific period relative to an average employee doing similar work, managers can identify areas for improvement. Thus, managers can develop personalized plans for each employee, which will help them enhance overall productivity.
  • Centrally managed employee information: Storing payroll data, performance data, contact details, etc. helps HR managers manage employee information in a single database. Additionally, HR managers don’t have to update employee details in as many places and this can also help them more smoothly align a promotion with a new salary or performance rating with the employee’s bonus amount.
  • Employee-centric culture: Ultimately, personnel management aims to benefit employees. Companies use this feature to identify and fix issues and even ensure fair practices such as equal pay.

Notable features: Optional features to be considered against specific business needs

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Performance management boosts employee morale and productivity


Performance management automates the employee performance evaluation process. This feature of HR software makes it possible to regularly collect employee feedback from peers, supervisors, and HR managers, as well as track the status of feedback in real time.

The goal of this feature is to enhance employee skills and morale, while ensuring business growth. It helps managers identify bottlenecks in productivity and align employee goals with overall business objectives.

In addition, managers can plan personalized coaching and development programs for each employee based on feedback.

Key facts

  • Sixty-three percent of employees believe that their performance is not rewarded, resulting in a decrease in employee retention and higher levels of turnover.
  • Ninety-five percent of small business managers are dissatisfied with their existing performance management system.

Key technical parameters of performance management features

  • Set employee goals: Set SMART (specific, measurable, achievable, realistic, and time-based) goals for your employees, e.g., increase sales revenue by 5 percent through social media click-through traffic in a quarter. Use 360-degree feedback performance evaluation features to align individual goals to the company objectives.
  • Manage feedback: The feature automatically stores employee feedback. It also reminds employees to finish self-evaluations and notifies them when they receive feedback.
  • Provide training and resources: After analyzing employee performance and identifying areas for improvement, managers can provide resources to help them accomplish their career goals.
  • Evaluate employee performance: Recognize overperforming and underperforming employees based on their overall scores/ratings. This will help you determine which employees need training and which are potential leaders.

Key benefits of performance management features

  • Eradicating the halo effect: A performance management system can remove biases in evaluating employees. Automation eliminates human bias and instead, focuses on merit-based rewards.
  • Special focus on employee motivation and retention: When managers know an employee’s key strength and weakness, they can assign tasks that play to the employee’s strengths and organize training to work on their improvement areas. This aims to retain employees and keep them motivated.
  • Consistent employee performance: With defined KPIs, employees can work on their goals and managers can estimate timelines to meet the larger business goals. For instance, setting a certain number of hours of employee productivity per week helps you estimate your annual productivity and find out ways to improve it every year.

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Payroll management helps you avoid noncompliance penalties


Payroll management automates the process of managing financial records and processes such as salaries, bonuses, and tax payments. It integrates with other HR software features such as leave management and time tracking. It also helps you comply with federal and state rules and regulations regarding employee payment, tax withholding, and labor laws.

Key facts

  • Fifty-four percent of the American workforce has experienced payroll-related problems
    such as late payments and inaccurate salary disbursement.
  • HR managers spend about 36 hours a week on compliance activities such as tracking regulatory proposals or creating new policies.
  • Most small business owners believe that federal taxes have a big impact on their daily operations. One in 4 small business owners say they spend more than six hours each month handling payroll taxes internally
  • Failing to deposit federal income tax results in a penalty of up to 15 percent of the past due amount.

Key technical parameters of payroll management features

  • Simplifies payroll for new hires: Automatically add new hires to your payroll. When an employee joins, the software can generate essential tax forms (such as W-4s) to calculate their tax liability according to state and federal tax regulations.
  • Speeds up employee payroll: This feature automatically calculates an employee’s remuneration for a set time period—monthly, weekly, or bi-weekly. When calculating salary, it automatically considers attendance, benefits, salary grade, employment terms and policies, etc., to ensure accuracy.
  • Helps you comply with federal laws: The software acts as a central database of salaries, tax withholding, and up-to-date labor law requirements. HR managers can view and manage various payroll taxes such as income tax withholdings, Federal Unemployment Tax Act (FUTA), and Federal Insurance Contributions Act (FICA).

Key benefits of payroll management features

  • Fewer payroll errors: Automated calculation of tax withholding, benefits, and remuneration eliminates manual errors in payroll taxes. This is highly beneficial because any miscalculations can result in corporate tax default.
  • Greater accuracy in payroll budget forecasting: Payroll management reports help finance departments forecast expenses for the upcoming quarter or year. This helps business owners make decisions about increasing or decreasing the workforce or adjusting employee salaries.
  • Elimination of redundant tasks: This feature automates essential HR tasks such as year-end reporting. It also eliminates mundane and time-consuming processes such as open enrollment (i.e., updating or verifying insurance details).

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Recruiting and applicant tracking features streamline hiring


Recruiting and applicant tracking features of HR software provide a centralized database of applicant information. Users can track the progress of each candidate and streamline the recruitment workflow by automating time-consuming tasks such as resume filtering, candidate screening, and scheduling interviews.

According to a GetApp survey, 49 percent of businesses do not use applicant tracking systems. But as your business grows, limited HR resources (staff and budget) won’t be able to efficiently handle hiring, resulting in not finding and attracting the right talent.

Key facts

  • The applicant tracking and recruiting software market is predicted to grow at a CAGR of 8.5 percent from 2017 to 2021.
  • Integration with career sites is vital to applicant tracking. Promoted jobs result in an 88 percent higher conversion rate for qualified candidates.
  • Eighty-six percent of recruiters say that an applicant tracking system (ATS) has increased their speed of hiring.

Key technical parameters of recruiting and applicant tracking features

  • Streamlines the hiring process: Recruiting features let HR staff create job application forms to gather an applicant’s employment history, educational background, certifications, etc. Some solutions use a visual text editor to do this. You can customize the form with a drag-and-drop interface to score candidates on their experience, skills, etc.
  • Manages candidate data: Recruiters can schedule automated emails to update shortlisted candidates about interview details. Advanced HR software allows recruiters to import a candidate’s data into the personnel management once they’re hired.
  • Enhances recruiting with predictive analytics: Some advanced ATS features use predictive analytics to track various platforms (job portal or career page). This helps employers identify the right platform for finding the best-fit candidates or finding ways to improve candidate engagement on their own careers page.

Key benefits of recruiting and applicant tracking features

  • Improved candidate engagement: A GetApp survey found that using an ATS improved the speed of hiring and the quality of candidates. It also improves the candidate experience and helps businesses make smart hiring decisions with the help of predictive analytics on real-time data.
  • Organized candidate database: Managing candidate information in a single database eliminates the task of sorting and filing paper applications, saving you time and money.
  • Better quality of candidate: Automating time-consuming manual tasks allows recruiters to focus on improving the quality of hire, a top KPI for HR.

Next steps and additional resources

There are many factors that go into selecting HR software. Here are a few things you should keep in mind:

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