Window maker Atrium Companies Inc. grew from 900 employees to 5,600 across 40 locations in the last six years through a series of acquisitions. In the process, it inherited new employees' health plans, leaving human-resource managers dealing with nearly 50 plans.

Many small and midsize businesses struggle with managing their HR processes and systems. They're often large enough to have big-company headaches, but not big enough to be able to afford large-scale HR applications or blue-chip outsourcing firms that usually target companies with 10,000 employees or more. At the same time, companies are struggling with soaring employee health-care costs. Atrium is in its third year of double-digit increases, says Nancy Hartmann, Atrium's director of compensation and benefits.

Atrium's HR department tried to handle the open enrollment processes for these health plans in-house, but quickly realized it lacked the staff. It tried to outsource open enrollment to a services firm, but that company didn't have the wherewithal to handle the work, Hartmann says. Earlier this year, Atrium contracted with Employease Inc., which offers HR information-system applications via an ASP model, as well as outsourcing services for a number of HR processes, including open enrollment.

Since handing over benefits administration to Employease, Atrium's HR mangers now have the time to address other issues, such as figuring out how to whittle down the number of health programs and how to lower the company's 147% annual employee turnover rate. "In the first month alone, Employease handled 700 E-mail questions from managers and employees that our own HR managers would've spent hours and days handling," Hartmann says.

Before Employease, Atrium had little experience with technology-enabled HR processes, most of which still happen on paper. The hosted technology lets Atrium begin automation without a major up-front investment, Hartmann says.

But more investment is likely to follow. Most of Atrium's workers are in factories and don't have access to PCs. So in January, Atrium will begin rolling out kiosks to let people enter benefits and other HR information electronically. Atrium is considering whether to automate more widely through the purchase of an HR software suite. That would pit Employease-hosted applications against suites from software vendors such as SAP AG or PeopleSoft Inc., which have HR systems tuned to manufacturing processes. Until such a decision is made, Employease's hosted solution and selected outsourced services offer Atrium great flexibility, Hartmann says.

Employease's hosted and outsourced services typically cost companies $4 to $8 per employee a month, VP of product strategy Jeff Beinke says.

Employease's offering falls in the middle of an HR-technology continuum, says Jim Holinsheck, a Gartner research director. On one end there are HR software suites, such as that offered by PeopleSoft, and at the other end there are outsourcing companies, such as Automatic Data Processing Inc. and Ceridian Corp., that take over entire HR processes.

Although software vendors, including PeopleSoft, also frequently offer hosted versions, larger customers tend to prefer deploying the software internally, Holinsheck says. "We're starting to see an uptake in interest in the hosted approach in the small- to midsize-customer market," he says. "Those customers like the smaller up-front investments" in an ASP model compared with an internal deployment.

Holinsheck estimates the hosted HR software market for smaller customers is a $50 million to $100 million market, "but growing fast." By contrast, he estimates HR software purchased for internal use by small to midsize customers is about $500 million annually.