If you’re like most small business owners, you didn’t start your company because you love Human Resources (HR). You built your business by delivering great service, taking care of customers, and growing your team—and somewhere along the way, “HR” became another hat you had to wear.
At first, handling HR yourself or delegating it to your office manager might have worked fine. But as your business grows, managing people becomes more time-consuming and risky. Compliance questions pop up. Employee relations issues take longer to resolve. Payroll, benefits, and documentation start to feel like a second full-time job.
That’s when the questions start:
- “Do I need a full-time HR person?”
- “When does a company actually need HR?”
Hiring your first HR professional is not only a major milestone, it’s a significant investment. And the true cost goes far beyond salary.
In this guide, we’ll explore when it makes sense to hire in-house, what it really costs, and the alternatives that can deliver the same expertise for less.
When Does a Company Need HR?
Every growing business eventually hits a point where “figuring it out as we go” stops working. Maybe you’re managing new hires across multiple locations, or maybe the questions from your team are starting to sound more like an HR exam.
These are signs that your business is outgrowing its ad-hoc HR system—and that it might be time to bring in professional help.
The HR Tipping Point: Employee Count and Complexity
When it comes to HR department sizing, there’s no single magic number that says, “You must hire HR now,” but there are clear thresholds that make it more practical.
- Under 30 employees: Most small businesses in this range are still managing HR informally. The owner, office manager, or bookkeeper is often handling payroll, onboarding, and basic compliance tasks.
- Around 40–50 employees: This is the point where most organizations need at least part-time or dedicated HR support. The administrative workload, recordkeeping, and compliance obligations begin to demand someone’s full attention.
- Beyond 100 employees: Larger small businesses typically require an internal HR department or a structured partnership with an external HR firm. At this size, even one experienced HR generalist may struggle to keep up with recruiting, training, compliance, and employee relations.
According to the Society for Human Resource Management (SHRM), the average HR-to-employee ratio for smaller organizations is roughly 1 HR professional for every 58 employees. If you’re approaching that ratio—or constantly fielding HR questions instead of running your business—you’re already past the point of needing support.
Why Size Isn’t the Only Factor
Employee count is a guide, but not the full story. You may need HR help sooner if your company:
- Operates in multiple states (with different employment laws)
- Has high turnover or seasonal hiring cycles
- Is in a highly regulated industry such as construction, pest control, or healthcare
- Plans to scale quickly or introduce new management layers
In these situations, even a business with 20 employees can face the same HR challenges as a company twice its size. The more complex your structure becomes, the higher your exposure to compliance issues and the greater the need for professional HR oversight.
The True Costs of Hiring an HR Manager
Once you decide it’s time for HR support, the next question is often financial: What will it actually cost to bring someone on board?
Hiring your first HR professional is more than just adding another salary. It’s an investment in systems, technology, and compliance—and those costs add up faster than most small business owners expect.
Salary and Benefits
Entry-level HR generalists typically earn between $60,000 and $80,000 annually, while experienced HR managers range from $80,000 to $110,000, depending on experience, location, and industry.
But salary is only part of the equation. Benefits such as health insurance, retirement contributions, and paid time off often add 20–30% on top of base pay. That means a $70,000 salary could quickly become $85,000 to $90,000 in total compensation once benefits are factored in.
If you also need a benefits administrator or payroll support, those responsibilities either increase the HR manager’s workload or require additional staff or vendor contracts, all of which expand the total HR budget.
Recruitment and Onboarding Costs
Finding the right HR professional isn’t cheap or quick. External recruiters often charge 15–25% of first-year salary, and even if you manage the search internally, there’s the time cost of writing job postings, screening applicants, and interviewing candidates.
Once hired, new HR staff need training, access to internal systems, and time to learn your company’s processes and culture. During that onboarding period, productivity is naturally lower, which can delay the impact of your investment.
HR Technology and Infrastructure
Your new HR hire can’t work effectively without the right tools. Most businesses need at least some combination of:
- An HR information system (HRIS) for recordkeeping and employee data
- Payroll and timekeeping software
- Applicant tracking systems for recruiting
- Compliance and reporting tools
These programs often cost $3–$15 per employee per month, depending on the level of automation. For a 50-person company, that’s anywhere from $1,800 to $9,000 per year (before you account for setup, integration, or potential upgrades to your IT infrastructure).
Even if your HR person manages these tools well, someone in leadership still needs to oversee contracts and budgets, which means ongoing time investment at the executive level.
Compliance, Training, and Legal Support
HR is one of the few areas of your business that changes constantly. Labor laws shift, benefit requirements evolve, and state-specific regulations multiply. To stay compliant, your HR professional will need ongoing training and certification renewals.
Memberships in professional organizations, continuing education, and conference attendance can easily run $2,000–$5,000 annually—and that’s before accounting for the cost of legal counsel when complex questions arise.
Even with an in-house HR manager, you’ll likely still need external employment law support from time to time. Attorneys specializing in HR compliance typically charge $300–$500 per hour, and while your HR professional can reduce how often you need them, that line item rarely disappears completely.
Bringing HR in-house can absolutely create stability and structure but for many growing businesses, it also introduces a level of overhead that’s hard to sustain. That’s why the next step is understanding what the return on that investment looks like, and when it truly pays off.
The ROI of HR
It’s easy to think of HR purely as an expense, but in reality, a well-structured HR function is an investment that pays for itself many times over. When managed effectively, HR protects your business from risk, strengthens your culture, and helps your team perform at its best.
Reducing Risk and Ensuring Compliance
Even small compliance errors—like misclassifying employees or missing I-9 documentation—can lead to steep penalties and legal costs. A skilled HR professional keeps your business compliant with federal and state employment law, maintains records properly, and ensures policies are applied consistently.
For small businesses, this kind of prevention is invaluable. Employment-related claims often exceed $100,000, and even when you win, the disruption can cost far more. Effective HR support helps you avoid those risks before they escalate.
Improving Employee Retention and Engagement
Replacing a single employee can cost up to twice their salary when you consider recruiting, onboarding, and training. A dedicated HR function helps you hold on to great talent by improving employee engagement, facilitating better performance reviews, and building a culture where people feel supported and recognized.
According to Gallup, companies with highly engaged teams experience 40% less turnover and 41% fewer absences—results that directly improve productivity and profit.
Enhancing Productivity and Strategic Growth
Strong HR systems remove confusion and create focus. When job descriptions, performance expectations, and training plans are clear, your team can do their best work.
HR also drives smarter strategic planning, forecasting workforce needs, designing compensation structures, and aligning people strategy with business goals. Whether handled internally or through a trusted HR consultant, these efforts help your company scale more effectively.
Alternatives to Hiring an HR Manager
Hiring an in-house HR manager isn’t the only way to get the support your business needs. Many growing small businesses find that outsourcing, fractional arrangements, or project-based HR services provide the same expertise at a fraction of the cost.
Outsourced HR
If you’re comparing outsourced HR vs. hire in-house, think about more than just salary. In-house HR offers day-to-day availability and deep company familiarity, but it comes with higher fixed costs: salary, benefits, software, and ongoing training.
Outsourced HR, on the other hand, provides scalable expertise and predictable pricing. You can access experienced professionals for compliance, training, or employee relations without adding to your payroll.
For many companies under 100 employees, this cost-effective model delivers the right balance of control and flexibility.
Fractional HR
A fractional HR consultant gives you executive-level support on a part-time basis. This model allows you to tap into senior HR leadership—the kind of expertise most small businesses can’t afford full-time—for a predictable monthly fee.
With fractional HR, you gain help with everything from strategic planning and compliance audits to performance management and employee engagement initiatives. It’s the ideal solution when you’ve outgrown DIY HR but aren’t ready for a full internal department.
HR Consultants for Project-Based Needs
Sometimes you just need help with specific initiatives: creating an employee handbook, auditing HR files, or updating job descriptions and classifications. A professional HR consultant can complete these projects efficiently, helping you stay compliant and build strong HR systems that will scale with your company.
This option also gives you a chance to “test drive” outsourced HR support. Many businesses start with project work and later transition into a fractional partnership once they see the value.
PEOs and Other Outsourced Models
Some small businesses consider using a Professional Employer Organization (PEO) to outsource HR administration. On paper, PEOs can sound appealing—they bundle payroll, benefits, and compliance into one package. But in practice, that convenience often comes with risks.
PEOs typically take co-employment of your staff, meaning your employees are technically on the PEO’s payroll. That can create confusion, limit flexibility in decision-making, and complicate how you manage benefits or terminations. Many business owners also find that PEOs charge hidden fees or make it difficult to leave their contracts once they’ve signed on.
The bottom line? You don’t have to choose between doing it all yourself and hiring full-time. Flexible HR support models let you manage costs, stay compliant, and build a strong workplace foundation, all while keeping your focus on growing the business.
How to Make the Right HR Investment Decision
There’s no universal answer to when a business should hire HR, but there are reliable indicators that tell you it’s time to make the investment. The right moment depends on your company’s size, growth, and how much time leadership is spending managing people instead of strategy.
The goal is to find a balance: building the HR structure you need before compliance issues, turnover, or burnout start costing you more than an HR professional ever would.
If you’re unsure whether it’s time to bring in HR expertise, start with a quick self-check:
- Are HR tasks consuming leadership time that should be spent on growth or customers?
- Have you faced (or worried about) compliance or employee relations issues?
- Do you have employees in multiple states with different labor laws?
- Is turnover increasing or becoming harder to manage?
- Have you struggled to keep up with hiring, onboarding, or performance reviews?
- Are you planning for rapid growth or restructuring in the next year?
If these sound familiar, your company has reached the point where HR is no longer optional, it’s essential to your long-term success.
An HR professional or fractional HR consultant can help you regain focus on running your business while ensuring compliance, structure, and peace of mind. The key is choosing a model that matches your stage of growth, not one that forces you to overhire or overspend before you’re ready.
You Don’t Have to Figure It Out Alone
The longer you wait to address HR gaps, the more expensive those gaps become. One misclassified employee, missed compliance deadline, or mishandled termination can cost far more than a year of proactive HR guidance. And beyond the financial impact, unresolved HR issues can drain leadership time, damage morale, and slow down your growth.
That’s where Seay HR comes in.
Our team provides experienced, fractional HR consultants who act as an extension of your business, helping you manage HR responsibilities, ensure compliance, and strengthen your workplace culture without the full-time cost. Whether you need help creating policies, training supervisors, or designing performance review systems, we offer flexible solutions that scale as you do.
For nearly 60 years, Seay HR has helped small businesses across Central Florida and beyond navigate everything from everyday HR questions to complex employment law challenges. We bring big-company expertise with small-business empathy because we know what it’s like to balance growth with limited time and resources.
If you’ve been wondering when to hire HR, or how to make the most cost-effective choice, start with a conversation. Our consultants can help you evaluate your current setup and design the right HR strategy for your business—today and for the future.
Contact Seay HR to schedule a consultation and discover how fractional HR support can help you scale with confidence.
Please note: This article is for informational purposes only and does not constitute legal or professional advice. Seay HR makes no representations or warranties, express or implied, regarding the accuracy, completeness, or applicability of the information contained herein.
Seay HR disclaims all liability for any actions taken or not taken based on the information in this article. Readers are solely responsible for their own interpretation and use of this information.
