Updated 18 October 2026
A hosted (cloud) phone system runs in a data centre and your phones connect over the internet. An on-site system is a phone switch (PBX) installed in your building. Both can do auto attendants, voicemail to email and call transfers. The differences are in cost, flexibility and what happens when something goes wrong.
Cost
Hosted systems cost little upfront: you pay for handsets (or use the apps) and a monthly fee per user. On-site systems cost more upfront because you buy the system, then pay for phone lines or SIP trunks and optional maintenance. Over five or more years, an on-site system can work out cheaper for larger sites with stable headcount; hosted is usually cheaper for smaller teams and growing ones.
Flexibility
Hosted wins for businesses with several locations or staff who work from home, because every user is on the same system wherever they are. Adding a user takes minutes. On-site systems can support remote users, but it takes more setup.
Reliability
A hosted system depends on your internet connection. If the connection drops, calls can forward automatically to mobiles, but the desk phones will not work until it returns. An on-site system keeps internal calling running during an internet outage, and with traditional lines can keep external calls going too. For sites with poor internet, on-site can be the safer choice.
Who suits which
- Choose hosted if you have under about 50 users, more than one site, remote or hybrid staff, or want predictable monthly costs.
- Choose on-site if you have a large single site, unreliable internet, specialist integrations (for example in a plant or hotel), or a recent on-site system worth keeping.
Checklist before you decide
- How many users and sites do you have now, and in three years?
- How reliable is your internet, and do you have a backup connection?
- Do staff need to take calls away from their desk?
- Which features do you actually use: queues, recording, paging?
- Can any existing handsets or cabling be reused?
- Who will you call for changes and support?
If you would like a second opinion, we offer a free phone system review for Windsor-Essex businesses. See business phone systems.